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How to move from SEP-IRA at Vanguard to Solo 401k?

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  • How to move from SEP-IRA at Vanguard to Solo 401k?

    I currently have a SEP-IRA at Vanguard with about ~120k in it.  When I initially set up the plan and as I have posted elsewhere, I chose the SEP for simplicity.  I figured at that time I would just take any "extra" money after I maxed the SEP and use it to pay down student loans.  At this point I'm starting to regret not starting a 401k so that I could utilize a backdoor roth option.  Over the next year my household income is going to dramatically increase when my wife starts working her attending job as well.  She will be on a 403b/457 (government) and we will easily max both of those in addition to my sep.  That will give us around 88K (plus any matching) a year in retirement accounts.  Our total income will be around 600K.  88k/600k*100%= 14.6% of gross income to retirement accounts.  I figure if we can get an additional 11k we can squeeze it up to about 16.5% of gross income towards retirement accounts.  We can easily afford it, so why not?

    This is were my problem starts.  I wouldn't mind just staying at Vanguard but they don't allow incoming IRAs to solo 401k.  So I guess my options are to either start a 401k with another provider and roll my IRA into that account or to do some sort of mega backdoor roth...

    Any ideas?  Can I roll an IRA to someone else, then roll back a 401k to Vanguard into a 401k?  Just seems like a mess.

     

    We plan to use much more of the income to improve net worth than just the retirement accounts but this is just focusing on 401k/IRA options.

     

  • #2
    It sounds as if that is what you'll have to do if you want to stick with Vanguard. This post from the Oblivious Investor confirms what you have been told. Have you seen this article by WCI? We have custodied with e*Trade in the past and they were very easy to work with (we changed because the client statements weren't as robust as we would like). We now custody with TDAmeritrade and their services are top-notch. However, if you are a loyal Vanguard fan, then you'll have to jump through the hoops.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3




      I currently have a SEP-IRA at Vanguard with about ~120k in it.  When I initially set up the plan and as I have posted elsewhere, I chose the SEP for simplicity.  I figured at that time I would just take any “extra” money after I maxed the SEP and use it to pay down student loans.  At this point I’m starting to regret not starting a 401k so that I could utilize a backdoor roth option.  Over the next year my household income is going to dramatically increase when my wife starts working her attending job as well.  She will be on a 403b/457 (government) and we will easily max both of those in addition to my sep.  That will give us around 88K (plus any matching) a year in retirement accounts.  Our total income will be around 600K.  88k/600k*100%= 14.6% of gross income to retirement accounts.  I figure if we can get an additional 11k we can squeeze it up to about 16.5% of gross income towards retirement accounts.  We can easily afford it, so why not?

      This is were my problem starts.  I wouldn’t mind just staying at Vanguard but they don’t allow incoming IRAs to solo 401k.  So I guess my options are to either start a 401k with another provider and roll my IRA into that account or to do some sort of mega backdoor roth…

      Any ideas?  Can I roll an IRA to someone else, then roll back a 401k to Vanguard into a 401k?  Just seems like a mess.

       

      We plan to use much more of the income to improve net worth than just the retirement accounts but this is just focusing on 401k/IRA options.

       
      Click to expand...


      You can roll over your IRA into a Vanguard solo 401k only if you have a custom plan document.  Then when you have a plan document you can open a VRIP account.  I've described this process here:

      https://www.whitecoatinvestor.com/improving-the-vanguard-individual-401k-with-a-customized-plan/
      Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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      • #4
        This is a big pain in the butt since Vanguard doesn't do such conversions.  You will have to do this at another custodian.  This is what you do:

         

        1)  Set up SEP-IRA at Fidelity.  Have them pull all your assets in, and purchase similar spartan funds in place of your Vanguard funds.

        2)  Convert SEP-IRA to solo401k at Fidelity

        3)  Set up individual 401K at Vanguard

        4)  Have Vanguard pull in money from Fidelity and purchase similar Vanguard funds.

         

        Since this is all in tax deferred space there is to taxes due on these sales and purchases.  You can also use other custodians such as Schwab and I'm sure others that will do the conversion for you.

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        • #5
          And you still can't roll anything into that new plan at Vanguard (in case you need to do that later from an employer plan), and don't have access to either the brokerage or Admiral shares of funds.  And you can't do in-plan Roth conversions (that's not available with any custodians anyway). Sounds to me like paying for a custom plan document might be cheaper than doing all of the above, especially if you have large amounts going into this plan.  I don't work for Vanguard and I don't sell plan documents, but in my experience this is a better way to go especially if you anticipate using the VRIP account down the line as a 401k plan for your practice (if you ever want to purchase a practice with employees, which is true for dentists especially).
          Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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          • #6
            Kon,

            A buddy of mine just went through this process.  Although a bit tedious, it got done.  He then was able to make back door Roth contributions at Vanguard.

            Although a pain in the behind, It really wasn't difficult.  Only 4 steps.  This will only work if the money is pulled since Fidelity wants your cash.  Also, once the cash is out of the Sep you are technically done and can move the money back into Vanguard at any time you choose.  It doesn't have to happen immediately.  After all, you are still investing in almost the same index funds.

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