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Do robust solo 401(k) features really matter?

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  • Do robust solo 401(k) features really matter?

    My fiance needs to set up a solo 401(k) as she is starting to have 1099 income in addition to her w-2 income. I recommended she set this up at E-trade. She has multiple accounts at Schwab and is most interested in keeping her money all with one firm. I know Schwab doesn't allow roth 401(k) contributions or loans. My question is: does it really matter if a 401k doesn't have a roth feature? She plans to make traditional contributions for the most part. In the event of a low-income year, wouldn't doing a traditional 401(k) to roth IRA rollover serve the exact same function as having a roth 401(k)? Am I missing something?

    In regards to other Schwab downsides: we hopefully never have to take a loan out of our retirement accounts. And sending a check for contributions is a little annoying but not that big a deal to her. So the main potential downside I can see is the lack of roth.

    Thanks!

  • #2
    not having Roth doesn’t matter, until you want Roth

    not all 401k money is eligible for in service rollover to IRA (for your Roth workaround). Do you know these rules? Have you read the Schwab solo 401k document to figure out if your workaround would work for the contribution types that you expect to make?

    if you want to do a Roth workaround like you say, that’s one rare instance where a SEP IRA is better than a (non E*TRADE) solo 401k (E*TRADE still wins because their plan allows in plan Roth rollover)

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    • #3
      IRS regulations prohibit the in-service rollover of employee deferrals prior to age 59 1/2.

      Since Schwab offers a prototype SEP IRA which can coexist with a one-participant 401k. Pre-tax traditional employee deferrals could be made to the i401k and employer contributions to the SEP IRA. Then a Roth conversion of the SEP IRA to a Roth IRA could be done

      As pointed out E-Trade has the most flexibility. They offer both designated Roth accounts for employee deferrals and in-plan Roth rollovers of pre-tax assets.

      ​​​​
      Last edited by jfoxcpacfp; 01-16-2021, 07:41 AM. Reason: Changed “band” to “and” in last sentence

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      • #4
        Simplicity is usually good. Why not just use Schwab until a year when a Roth contribution or in-plan r/o makes sense? After all, you’re not chained to a custodian forever.
        Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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        • #5
          Simplicity is usually good. Why not just use Schwab until a year when a Roth contribution or in-plan r/o makes sense? After all, you’re not chained to a custodian forever.
          Good thought. Can she have multiple solo 401(k)s at a time? ie could she have a solo 401(k) from Schwab and E trade open at the same time (obviously you would have to keep your yearly contributions under the yearly limit)? Or would she have to close the Schwab one and convert it into E trade if this situation ever presents itself?

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          • #6
            Originally posted by creeker View Post

            Good thought. Can she have multiple solo 401(k)s at a time?
            no

            simplicity is good unless it's too simple. Moving from a Schwab 401k to Etrade 401k would be a hassle that in my mind far outweighs the benefit of "simplicity" in this case.

            but to each their own

            I'm actually a big Schwab fan. I have multiple accounts there. But I also have accounts at Etrade, Vanguard, Fidelity, and M1 all for specific reasons and advantages over the others.

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            • #7
              simplicity is good unless it's too simple. Moving from a Schwab 401k to Etrade 401k would be a hassle that in my mind far outweighs the benefit of "simplicity" in this case.

              but to each their own

              I'm actually a big Schwab fan. I have multiple accounts there. But I also have accounts at Etrade, Vanguard, Fidelity, and M1 all for specific reasons and advantages over the others.
              I personally agree with you as well. Like you, I use different companies for different reasons and have my solo 401k at E trade. Just trying to get as much information on the situation so I can figure out how hard to lobby against sticking fully with Schwab like she has expressed preference for. In the end, it's her choice though.

              I appreciate your insights.

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