Roth Conversions in Early Retirement - Solo 401k?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
User avatar
Topic Author
Zardoz
Posts: 140
Joined: Thu Sep 24, 2020 12:25 am

Roth Conversions in Early Retirement - Solo 401k?

Post by Zardoz »

I'm retiring later this year at age 53 on a modest portfolio, with most of it in held in taxable accounts. I have a small (corporate) 401k and a small IRA, and my plan is to convert some of those funds into a Roth IRA every year at either the 0% or 12% tax bracket.

I don't yet have a Roth IRA, but about 10% of my (Fidelity*) IRA is post-tax money, so I was thinking of rolling the pre-tax portion into a new Solo 401k (Edit: I have a side business with 1099 income) and then rolling the post-tax portion into a Roth IRA. Then next year I would roll my existing corporate 401k into a traditional IRA and make my first (taxable) Roth conversion from there.

* I want to keep all accounts at Fidelity because I hold individual bonds (TIPS) in the IRA and would like to be able to transfer them in kind into the Solo 401k and Roth.

From age 54-59 I should be able to convert most of the traditional IRA (which was rolled over from the corporate 401k) into the Roth. Then at age 59.5, I would also roll the solo 401k into the traditional IRA, and start doing Roth conversions with that money as well.

An alternative I considered is skipping the Solo 401k step and just doing the Roth conversions from my existing IRA, paying tax using the pro rata rule (meaning about 90% of my conversions with be taxed, instead of 100%).

Pros and Cons I see for doing the Solo 401k rollover
+ Gets 10% of the IRA money into a Roth this year
+ Don't have to do the pro-rata calculation every year
- Extra paperwork / extra account
- Locks up the money until age 59.5 (okay in this case since I have other funds)

Opinions on which approach makes more sense in this situation? Anything I'm missing? Thanks!

Edit: Reference on Solo 401k for people with side jobs: https://thefinancebuff.com/solo-401k-se ... yment.html
Reference on backdoor Roth using Solo 401k: https://thefinancebuff.com/the-backdoor ... ow-to.html
Last edited by Zardoz on Sun Jun 27, 2021 11:04 pm, edited 2 times in total.
Withdrawal Phase Plan: Equities <= 50% | TIPS, I Bonds | VPW Worksheet | TPAW | Social Security @70
User avatar
retired@50
Posts: 12821
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by retired@50 »

Are you self-employed?

I was under the impression that was a requirement to start a solo 401k.

See link: https://www.bogleheads.org/wiki/Solo_401(k)_plan

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by retiredjg »

You cannot just open a Solo 401k without a business or self employment income. And once you stop working, you are supposed to close the Solo 401k. So it is not clear if this is an option for you. This statement has been called into question. I have not found good sources for clarification and think the statement may be correct in some situations and incorrect in others. So best to just ignore it.

You might be able to roll the pre-tax portion of your IRA into a current 401k though.
Last edited by retiredjg on Thu Jul 01, 2021 1:22 pm, edited 1 time in total.
User avatar
Peter Foley
Posts: 5533
Joined: Fri Nov 23, 2007 9:34 am
Location: Lake Wobegon

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by Peter Foley »

Have you considered the concept of rolling Roth conversions? Convert x dollars to a Roth each year for 5 years. In year 6 remove the original conversion and replace it with a new equal conversion. It is a work around to avoid early withdrawal penalties, 72t option etc.

Something to consider for those retiring quite young.
User avatar
Topic Author
Zardoz
Posts: 140
Joined: Thu Sep 24, 2020 12:25 am

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by Zardoz »

retired@50 wrote: Sun Jun 27, 2021 2:05 pm Are you self-employed?

I was under the impression that was a requirement to start a solo 401k.

See link: https://www.bogleheads.org/wiki/Solo_401(k)_plan
Sorry, I neglected to mention that I have side job income that should make me eligible for a Solo 401k. More info on this technique at https://thefinancebuff.com/solo-401k-se ... yment.html and https://thefinancebuff.com/the-backdoor ... ow-to.html Related: https://obliviousinvestor.com/solo-401k ... alculator/

I was planning to use a Solo 401k for this purpose instead of my corporate job 401k because I can open the Solo 401k with Fidelity, and (I think) transfer in kind from my Fidelity IRA.
Withdrawal Phase Plan: Equities <= 50% | TIPS, I Bonds | VPW Worksheet | TPAW | Social Security @70
User avatar
Topic Author
Zardoz
Posts: 140
Joined: Thu Sep 24, 2020 12:25 am

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by Zardoz »

Peter Foley wrote: Sun Jun 27, 2021 3:01 pm Have you considered the concept of rolling Roth conversions? Convert x dollars to a Roth each year for 5 years. In year 6 remove the original conversion and replace it with a new equal conversion. It is a work around to avoid early withdrawal penalties, 72t option etc.

Something to consider for those retiring quite young.
Thanks Peter, I'm still learning about Roth conversions and this is the first I've heard about the rolling conversion concept. I found this explanation on https://www.investopedia.com/terms/f/fiveyearrule.asp:
Each conversion has its own five-year period, but IRS rules stipulate the oldest conversions are withdrawn first. The order of withdrawals for Roth IRAs are contributions first, followed by conversions, and then earnings.

If you break the 5-year rule by withdrawing earnings or converted funds from a Roth too soon, your withdrawal will be deemed as an unqualified distribution by the IRS. Unqualified distributions are subject to taxes at your current ordinary income tax rate, plus a 10% penalty.
It sounds like this is indeed something I want to plan for, though I don't expect to need any of the Roth or traditional IRA money before I turn 59.5. So maybe at that point if I need money from the traditional IRA for living expenses I can withdraw it into a taxable account instead of Roth converting?
Withdrawal Phase Plan: Equities <= 50% | TIPS, I Bonds | VPW Worksheet | TPAW | Social Security @70
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by retiredjg »

In spite of what one would expect, you need to be careful with Investopedia. I have found more than one mistake in their material and no longer trust what they say as an unverified source for information.

For example, the statement "Unqualified distributions are subject to taxes at your current ordinary income tax rate, plus a 10% penalty". is just plain incorrect.

There are many unqualified distributions that are not subject to either tax or penalty...much less both tax and penalty. In fact, I'd guess that most unqualified distributions are not subject either tax or 10% penalty.

That particular paragraph you quoted is filled with a mix of correct, half correct, and incorrect statements. I'd look for another source if this is important to you.

It sounds like this is indeed something I want to plan for, though I don't expect to need any of the Roth or traditional IRA money before I turn 59.5. So maybe at that point if I need money from the traditional IRA for living expenses I can withdraw it into a taxable account instead of Roth converting?
Yes, if you need the money after age 59.5, you can withdraw from the tIRA with no penalty and use the money however you want. Of course, there will be tax.
User avatar
neurosphere
Posts: 5205
Joined: Sun Jan 17, 2010 12:55 pm

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by neurosphere »

Peter Foley wrote: Sun Jun 27, 2021 3:01 pm Have you considered the concept of rolling Roth conversions? Convert x dollars to a Roth each year for 5 years. In year 6 remove the original conversion and replace it with a new equal conversion. It is a work around to avoid early withdrawal penalties, 72t option etc.

Something to consider for those retiring quite young.
Interesting, I had not thought about this (rolling conversions) as something which may apply to my situation. Thanks for bringing it to my attention. Unlike the OP, I have very little in taxable accounts and if I retire early would deplete them before 60 if I relied on them. Suppose I retire at 52 and I have no taxable accounts but 70% in pre-tax money and 30% in Roth, with enough prior Roth contributions to pay expenses. If I convert $1000 in the (made up example) 25% bracket I'd end up with $1000 in the Roth then need $250 for taxes leaving $750 in the Roth I can take out penalty/tax free in 5 years. I can then use that $750 to pay the tax on a $3000 conversion. hmm. A way of shifting balances from pre-tax to Roth despite needing to use the Roth for expenses in order to avoid 10% penalties on pre-tax. Mentally I had considered Roth "too valuable" to use too early or to use to pay tax on conversions. Of course, in certain cases it might even be advantageous to just pay some 10% penalty depending on assumptions of future pre-tax balances and other income. Shoot, now I have more math do to. :)
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes" (even in taxable accounts).
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by retiredjg »

Is "rolling conversions" just a different name for Roth conversion ladder? Or is there a difference?
User avatar
neurosphere
Posts: 5205
Joined: Sun Jan 17, 2010 12:55 pm

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by neurosphere »

retiredjg wrote: Mon Jun 28, 2021 7:16 am Is "rolling conversions" just a different name for Roth conversion ladder? Or is there a difference?
I assumed it was the same thing, but just used the term that Peter used in this thread. When I had previously thought about or read about ladders, it was for the purpose of funding living expenses in 5 years. But I'm wondering whether it might be useful to use Roth dollars for both living expenses AND paying the tax on conversions. 72t might be a better way to go, but I'm looking for ways to avoid the "commitment" and hassle of calculating and reporting 72t withdrawals unless there is a very clear cut advantage.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes" (even in taxable accounts).
User avatar
Topic Author
Zardoz
Posts: 140
Joined: Thu Sep 24, 2020 12:25 am

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by Zardoz »

Rephrasing the question from my initial post -

The Solo 401k maneuver seems to provide a way to cleanly separate the basis so that the post-tax funds can be brought over into a Roth. I'm just trying to assess whether it's worth the trouble or not, and if there are any upsides or downsides that I'm missing?

Assuming 200k in IRA, with 20k of that as post-tax money

Scenario A:
- Roth convert 20k per year for 10 years, paying taxes on 90% (18k) of each withdrawal

Scenario B:
- Maneuver so that all 20k of the post-tax money is Roth converted now, tax free
- Roth convert 18k per year for 10 years, paying taxes on 100% (18k) of each withdrawal

Is the main advantage of B that I don't have to calculate the pro-rata tax each year?
Last edited by Zardoz on Tue Jun 29, 2021 10:25 am, edited 1 time in total.
Withdrawal Phase Plan: Equities <= 50% | TIPS, I Bonds | VPW Worksheet | TPAW | Social Security @70
User avatar
retired@50
Posts: 12821
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by retired@50 »

Given your A & B scenarios, I'd probably go with B. I wouldn't want to have the chore of dealing with pro-rata for a decade.

However, I doubt it will be as simple as you propose, unless the IRA is invested in something that doesn't grow or shrink in the 10 year time span.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by retiredjg »

Zardoz wrote: Mon Jun 28, 2021 6:50 pm Scenario A:
- Roth convert 20k per year for 10 years, paying taxes on 90% (18k) of each withdrawal

Scenario B:
- Maneuver so that all 20k of the post-tax money is Roth converted now, tax free
- Roth convert 18k per year for 10 years, paying taxes on 100% (18k) of each withdrawal

Is the main advantage of A that I don't have to calculate the pro-rata tax each year?
Actually, that would be the advantage of B. :happy However, calculating the tax is rather simple and done by tax software for you. But you do have to remember to do it.

I can think of another small advantage. If you go with B, you will have $20k in Roth IRA that is available immediately without penalty.

If you go with plan A, and needed the money before 5 years, the $18k would have a 10% penalty and then the other $2k would be available penalty free.
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by retiredjg »

A reminder - it is not necessary to convert this IRA or the 401k since they are small. It is always good to have some untaxed money in your income - to fill in the lower tax brackets (at least the "0% bracket" and the 10% bracket.)

If you have no other ordinary income (such as SS or a pension), you might want to keep some of this tax-deferred money (basis and all).

But I also like your idea of converting at 0% or 10% or 12% to the extent you can do that.
User avatar
Topic Author
Zardoz
Posts: 140
Joined: Thu Sep 24, 2020 12:25 am

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by Zardoz »

Thanks for the replies, it's helping me think through things.

Thinking about it more, there's a tax advantage to doing the split into Roth this year (Scenario B): any earnings on that $20k will be tax free. For example, imagine that the overall portfolio doubles in value:

Scenario A: $400k in traditional IRA, with $380k subject to tax due to pro-rata
Scenario B: $40k in Roth, $360k in Solo 401k subject to tax
Withdrawal Phase Plan: Equities <= 50% | TIPS, I Bonds | VPW Worksheet | TPAW | Social Security @70
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by retiredjg »

The earnings in the Roth IRA will not be tax free until you are 59.5 years old (and it has been 5 years since your first contribution to Roth IRA which will be before you are 59.5).
Oenophileangler
Posts: 38
Joined: Tue Sep 01, 2020 9:39 pm

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by Oenophileangler »

retiredjg wrote: Sun Jun 27, 2021 2:55 pm And once you stop working, you are supposed to close the Solo 401k.
retiredjg, can you explain the need to close the Solo 401k once "retired?" You cannot just keep the account? Thx.
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by retiredjg »

Oenophileangler wrote: Wed Jun 30, 2021 9:16 am
retiredjg wrote: Sun Jun 27, 2021 2:55 pm And once you stop working, you are supposed to close the Solo 401k.
retiredjg, can you explain the need to close the Solo 401k once "retired?" You cannot just keep the account? Thx.
Here is my limited knowledge. You are supposed to close the Solo 401k in either 7 months or by the 7th month of the next year. I think I have seen both mentioned. A form 5500 or 5500EZ is used. There is a penalty for not closing it.

There are a number of old threads about this that you can find using the google box above. In particular, look for posts by Spirit Rider or Alan S.
Oenophileangler
Posts: 38
Joined: Tue Sep 01, 2020 9:39 pm

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by Oenophileangler »

retiredjg wrote: Wed Jun 30, 2021 10:01 am
Oenophileangler wrote: Wed Jun 30, 2021 9:16 am
retiredjg wrote: Sun Jun 27, 2021 2:55 pm And once you stop working, you are supposed to close the Solo 401k.
retiredjg, can you explain the need to close the Solo 401k once "retired?" You cannot just keep the account? Thx.
Here is my limited knowledge. You are supposed to close the Solo 401k in either 7 months or by the 7th month of the next year. I think I have seen both mentioned. A form 5500 or 5500EZ is used. There is a penalty for not closing it.

There are a number of old threads about this that you can find using the google box above. In particular, look for posts by Spirit Rider or Alan S.
OK, here is (probably) the most germane thread:

viewtopic.php?t=206072

The form 5500(ez) needs to be filed within 7 months after the assets are drained from the 401k, according to that thread. I got a little bit nervous reading this, because after I retired from my W2 job as a physician, I started doing some part time telemedicine in a 1099 job. I started a solo 401k at Vanguard, and put a small amount of money in it. I haven't worked since Nov 2020 due to a family illness, and even though that illness is fine now, I haven't felt like doing more work. But I easily could. I like keeping my options open. I think I'll have to figure this out later this year when I have some major "work" expenses coming up (license, continuing education, etc), and I may say, forget it. I think that I could defend myself in any situation or courtroom and say that my business is still running, just dormant. But I'll have to rollover to an IRA once I call it quits.

Wow, reading the Bogleheads forum is pretty valuable! You learn something everyday! Thanks!
User avatar
neurosphere
Posts: 5205
Joined: Sun Jan 17, 2010 12:55 pm

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by neurosphere »

Oenophileangler wrote: Wed Jun 30, 2021 5:58 pm I think that I could defend myself in any situation or courtroom and say that my business is still running, just dormant. But I'll have to rollover to an IRA once I call it quits.
I recall there are specific rules about when one must empty a plan and "terminate" it. For example, I did some medical consulting 5 years ago. Nothing requires me to terminate my solo 401k. What if I might do some consulting again next year? Would I open a new 401k? As I understand it, a business (and by extension the business 401k plan) is open and running until you actively do something to stop it. I don't think periods with no income somehow triggers the termination of the business.

I have a vague memory of having read some official source for this, but... :D
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes" (even in taxable accounts).
BogleFan510
Posts: 1039
Joined: Tue Aug 04, 2020 2:13 pm

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by BogleFan510 »

removed by author
Last edited by BogleFan510 on Fri Jul 09, 2021 5:27 pm, edited 1 time in total.
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by retiredjg »

BogleFan510 wrote: Wed Jun 30, 2021 6:43 pm
retiredjg wrote: Sun Jun 27, 2021 2:55 pm You cannot just open a Solo 401k without a business or self employment income. And once you stop working, you are supposed to close the Solo 401k. So it is not clear if this is an option for you.

You might be able to roll the pre-tax portion of your IRA into a current 401k though.
Why would you be expected to close a 401k after stopping working? How would one pay benefits to retired employees if a company closed the plan when the business ended. Can you cite a reference?
This is a Solo 401k so no employees.

I wonder if it has to be closed when drained. Or closed when the business closes? Seems to be a grey area. When does self employment end? I don't think it is always clear. I'm thinking along the lines of what neurosphere said a couple of posts back.

This is an area I know little about, but I'm trying to pass on some warnings I have seen from others.
BogleFan510
Posts: 1039
Joined: Tue Aug 04, 2020 2:13 pm

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by BogleFan510 »

removed by author
Last edited by BogleFan510 on Fri Jul 09, 2021 5:27 pm, edited 1 time in total.
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by retiredjg »

BogleFan510 wrote: Wed Jun 30, 2021 11:29 pm yes, understood. I have a solo 401k. At some point you start taking retirement withdrawls, so even if the work ends, the plan may still be active. If the person dies, sure the plan has to end, but i dont think stopping work requires termination of the plan. I am still looking for a citation that this is the case. It doesnt make sense that if one assumes the solo 401k person eventually retires and takes RMDs, that they are forced to terminate the plan and roll into an IRA. I would assume the plan would then pay out retirement and terminate at death or end of funds.
This may have something to do with who is/what kind of entity is the sponsor of the Solo 401k. See Spirit Rider's comments in this thread.

viewtopic.php?t=282696
BogleFan510
Posts: 1039
Joined: Tue Aug 04, 2020 2:13 pm

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by BogleFan510 »

removed by author
Last edited by BogleFan510 on Fri Jul 09, 2021 5:26 pm, edited 1 time in total.
KineticSync
Posts: 107
Joined: Tue Jan 15, 2019 10:22 am

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by KineticSync »

My wife has a solo 401k which I administer. She'll probably do a soft landing in retirement and keeping it open in case she decides to pick up some small jobs in the future is attractive. My concern is that solo 401k administration has many, many potentially expensive and messy pitfalls unless the administrator stays on top of it. Plan restatement requirements, 5500-EZ annual and 5500-EZ termination requirements seem to impose a lot of risk if the plan administrator (me) should have an unplanned departure from this mortal coil.

So no clear answer here: the convenience of an already open S401k if some lucrative opportunities pop up vs. a zombie S401k with the potential for loss of tax advantage and thousands in taxes and penalties.
User avatar
Lee_WSP
Posts: 10401
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by Lee_WSP »

BogleFan510 wrote: Thu Jul 01, 2021 9:15 am
retiredjg wrote: Thu Jul 01, 2021 6:53 am
BogleFan510 wrote: Wed Jun 30, 2021 11:29 pm yes, understood. I have a solo 401k. At some point you start taking retirement withdrawls, so even if the work ends, the plan may still be active. If the person dies, sure the plan has to end, but i dont think stopping work requires termination of the plan. I am still looking for a citation that this is the case. It doesnt make sense that if one assumes the solo 401k person eventually retires and takes RMDs, that they are forced to terminate the plan and roll into an IRA. I would assume the plan would then pay out retirement and terminate at death or end of funds.
This may have something to do with who is/what kind of entity is the sponsor of the Solo 401k. See Spirit Rider's comments in this thread.

viewtopic.php?t=282696
I read his comment and the whole thread. Just an assertion with no citation.

Here is one commentary. While you can close one, I have read no source saying you must close the 401k. Again, it makes no sense since the purpose of the 401k is to pay gradual income once retired for decades. If a person wants to avoid the yearly forms, sure, close it.

https://www.mysolo401k.net/process-term ... ividual-k/
The compliance department of your 401k servicer has the answer. You could just call them and ask. Otherwise, you could spend thirty minutes reading through the code trying to figure it out and still not have a great answer.
User avatar
Topic Author
Zardoz
Posts: 140
Joined: Thu Sep 24, 2020 12:25 am

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by Zardoz »

Zardoz wrote: Tue Jun 29, 2021 9:56 pm Thanks for the replies, it's helping me think through things.

Thinking about it more, there's a tax advantage to doing the split into Roth this year (Scenario B): any earnings on that $20k will be tax free. For example, imagine that the overall portfolio doubles in value:

Scenario A: $400k in traditional IRA, with $380k subject to tax due to pro-rata
Scenario B: $40k in Roth, $360k in Solo 401k subject to tax
Just a quick follow up to note that I successfully opened the Solo 401k with Fidelity (required mailing in a few forms), and I then executed the rollover of all pre-tax contributions from my Fidelity IRA into the Solo 401k (required another form, which I dropped off at the Fidelity office). Then I completed an online transfer of the post-tax contributions from my Fidelity IRA into a new Roth IRA with Fidelity. The two rollovers took about 2 business days, and the assets (including individual bonds) where transferred in kind.

I also appreciate the extra information supplied by others on the thread about the various IRS rules. In my case I have less than $250k in the Solo 401k account, so I don't need to file the 5500-EZ annually. I just need to remember to file it once if/when I decide to terminate the Solo 401k. In the meantime I will continue to make a small contribution to the Solo 401k each year using income from my small business.
Withdrawal Phase Plan: Equities <= 50% | TIPS, I Bonds | VPW Worksheet | TPAW | Social Security @70
User avatar
BogleFanGal
Posts: 927
Joined: Mon Mar 20, 2017 6:59 pm

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by BogleFanGal »

Zardoz wrote: Sat Jul 24, 2021 2:01 pm Just a quick follow up to note that I successfully opened the Solo 401k with Fidelity (required mailing in a few forms), and I then executed the rollover of all pre-tax contributions from my Fidelity IRA into the Solo 401k (required another form, which I dropped off at the Fidelity office). Then I completed an online transfer of the post-tax contributions from my Fidelity IRA into a new Roth IRA with Fidelity. The two rollovers took about 2 business days, and the assets (including individual bonds) where transferred in kind.

...I will continue to make a small contribution to the Solo 401k each year using income from my small business.
Zardoz: thanks for following up on the outcome. Now that you have this solo 401k set up, all with pre-tax funds, what options do you have if/when you want to convert these funds to a roth vehicle? You can't convert to a roth IRA until after 59.5. So I'm thinking the only possible options before that are a direct rollover back to a TIRA, then Roth conversion from there. OR an in-plan conversion - traditional solo401k to roth solo401k? Does Fidelity allow that?
User avatar
Topic Author
Zardoz
Posts: 140
Joined: Thu Sep 24, 2020 12:25 am

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by Zardoz »

BogleFanGal wrote: Thu Aug 26, 2021 5:44 pm
Zardoz wrote: Sat Jul 24, 2021 2:01 pm Just a quick follow up to note that I successfully opened the Solo 401k with Fidelity (required mailing in a few forms), and I then executed the rollover of all pre-tax contributions from my Fidelity IRA into the Solo 401k (required another form, which I dropped off at the Fidelity office). Then I completed an online transfer of the post-tax contributions from my Fidelity IRA into a new Roth IRA with Fidelity. The two rollovers took about 2 business days, and the assets (including individual bonds) where transferred in kind.

...I will continue to make a small contribution to the Solo 401k each year using income from my small business.
Zardoz: thanks for following up on the outcome. Now that you have this solo 401k set up, all with pre-tax funds, what options do you have if/when you want to convert these funds to a roth vehicle? You can't convert to a roth IRA until after 59.5. So I'm thinking the only possible options before that are a direct rollover back to a TIRA, then Roth conversion from there. OR an in-plan conversion - traditional solo401k to roth solo401k? Does Fidelity allow that?
My understanding is that Fidelity doesn't allow traditional solo401k conversion into a Roth solo401k (but apparently Vanguard does, according to posts on this forum).

In my case I don't need to access the money or to convert it into a Roth until after age 59.5. My plan is to eventually terminate the solo401k and roll the balance back into a traditional IRA in order to facilitate Roth conversions.
Withdrawal Phase Plan: Equities <= 50% | TIPS, I Bonds | VPW Worksheet | TPAW | Social Security @70
User avatar
BogleFanGal
Posts: 927
Joined: Mon Mar 20, 2017 6:59 pm

Re: Roth Conversions in Early Retirement - Solo 401k?

Post by BogleFanGal »

Zardoz wrote: Sat Aug 28, 2021 12:36 pm My understanding is that Fidelity doesn't allow traditional solo401k conversion into a Roth solo401k (but apparently Vanguard does, according to posts on this forum).

In my case I don't need to access the money or to convert it into a Roth until after age 59.5. My plan is to eventually terminate the solo401k and roll the balance back into a traditional IRA in order to facilitate Roth conversions.
Makes sense - thanks for the response. Actually Vanguard doesn't allow a solo to solo roth conversion - at least not according to 2 different Vanguard retirement specialists I asked. I'll just do the same as you - wait until later to convert back.
Post Reply