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Recommended brokerage to set up solo 401(k) for mega backdoor ROTH?

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  • jacoavlu
    replied
    Originally posted by Nash22 View Post

    I just came here to post this. I went to fill out the application and found that the section for non-deductible employee contributions was checked No (as in not allowed).

    The explanation is this:

    Nondeductible employee contributions:

    This section has been prepopulated to reflect provisions that are in line with our operations. These elections should not be changed. Making changes to these elections on your Adoption Agreement could cause a rejection of your application, a delay in account opening or adverse tax consequences for your plan.

    I will call them to confirm that this cannot be changed.

    The application also asked for:
    Name of adopting employer.
    Employer tax ID number.

    Since I am a sole proprietor, do I just put my SSN, or will I need to establish an LLC and get an EIN if I want to do MBDR?

    Also, I am unclear if I need to apply for the Individual 401(k) or Roth 401(k) plan for the purpose of what i am trying to do. I only want to make pre-tax (not ROTH conversions) to the 401k, but I of course want to contribute the after tax additional contributions to ROTH by rolling them into a roth IRA.
    not sure why you're worrying about these other details, when I think its 99.9% likely that you can't do MBDR with this etrade plan after all (which is how it's always been in the past)

    If you want a MBDR plan, call Employee Fiduciary.

    Leave a comment:


  • GasFIRE
    replied
    This is JMO as I have no direct knowledge of what ETrade would do but if you can’t declare your contribution as after-tax they would code it as taxable income on the 1099-R when converting it to Roth. Paying extra tax based on your intent not matching what their plan documents allow would lead me to bail on this plan. If you proceed please post the results here when doing your 2022 taxes next year.

    Leave a comment:


  • Nash22
    replied
    Originally posted by GasFIRE View Post
    If you go through with this are you just ignoring the post from Harry Sit telling you that the section regarding allowing non-deductible employee after-tax contributions is now pre-checked “No” on the ETrade application? Answering “Yes” to this question is an essential part of the MBDR.
    PS - that information is correct, “No” is pre-checked: https://content.etrade.com/etrade/es...t_Plan_App.pdf
    I just came here to post this. I went to fill out the application and found that the section for non-deductible employee contributions was checked No (as in not allowed).

    The explanation is this:

    Nondeductible employee contributions:

    This section has been prepopulated to reflect provisions that are in line with our operations. These elections should not be changed. Making changes to these elections on your Adoption Agreement could cause a rejection of your application, a delay in account opening or adverse tax consequences for your plan.

    I will call them to confirm that this cannot be changed.

    The application also asked for:
    Name of adopting employer.
    Employer tax ID number.

    Since I am a sole proprietor, do I just put my SSN, or will I need to establish an LLC and get an EIN if I want to do MBDR?

    Also, I am unclear if I need to apply for the Individual 401(k) or Roth 401(k) plan for the purpose of what i am trying to do. I only want to make pre-tax (not ROTH conversions) to the 401k, but I of course want to contribute the after tax additional contributions to ROTH by rolling them into a roth IRA.

    Leave a comment:


  • GasFIRE
    replied
    Originally posted by Nash22 View Post
    With regards to E-trade doing their part correct, I'm still not exactly clear what they have to do. In other words, how do I know they've done "it" correctly?
    If you go through with this are you just ignoring the post from Harry Sit telling you that the section regarding allowing non-deductible employee after-tax contributions is now pre-checked “No” on the ETrade application? Answering “Yes” to this question is an essential part of the MBDR.
    PS - that information is correct, “No” is pre-checked: https://content.etrade.com/etrade/es...t_Plan_App.pdf

    Leave a comment:


  • Tim
    replied
    Originally posted by Nash22 View Post

    Where is the guide?
    If the answer is the tax code, that isn't really what I'm looking for.

    What I am looking for is something like:

    Step 1. Open account at X
    Step 2. Transfer money
    Step 3. Convert money
    Step 4. Fill out form Y and mail to address Z by this date if certain event happens
    Step 5. When filing 1040 at end of year, do the following, etc.

    With regards to E-trade doing their part correct, I'm still not exactly clear what they have to do. In other words, how do I know they've done "it" correctly?
    Apologies, not intended to be disrespectful. Think of this like "bad outcomes" in medicine. It's not so much steps 1-5, it's plans A,B,C that come from navigating multiple issues. Small mistakes or oversights, can be very bad. Poor analogy. People pay not for the time it takes for giving advice and expertise, but for the years it takes to accumulate the knowledge and expertise.

    You have had 2 pages of comments from folks with much more expertise than I. The suggestion seems to be you need some expert help. There is a reason for that.
    Your five step plan will seem to cost you some money. They have suggested that you hire someone. Sorry you didn't like the answer.

    Leave a comment:


  • Nash22
    replied
    Originally posted by Tim View Post
    “ It can't be that complicated, but without a guide, it makes it tricky”
    There is a guide, but it is complicated.
    Where is the guide?
    If the answer is the tax code, that isn't really what I'm looking for.

    What I am looking for is something like:

    Step 1. Open account at X
    Step 2. Transfer money
    Step 3. Convert money
    Step 4. Fill out form Y and mail to address Z by this date if certain event happens
    Step 5. When filing 1040 at end of year, do the following, etc.

    With regards to E-trade doing their part correct, I'm still not exactly clear what they have to do. In other words, how do I know they've done "it" correctly?

    Leave a comment:


  • Tim
    replied
    “ It can't be that complicated, but without a guide, it makes it tricky”
    There is a guide, but it is complicated.

    Leave a comment:


  • jacoavlu
    replied
    Originally posted by Nash22 View Post

    Thank you, this is basically my conclusion as well after a week or so of online research. I can see no reason to pay what is being referred to as a "document reseller" if there is still legwork to do on my part for compliance. If I am going to have to be responsible for any compliance at all, I would rather use the no cost option with E-trade, which is what I will do. Why would I pay for a service if I am still going to be responsible for compliance? I have not heard a good answer to this yet. The only reason I would do that is if I could mindlessly treat it like an IRA -- transfer my money and be done.

    My plan is open the account with E-trade this week, maximally fund it to IRS limits all at once for 2022 (seems like I have coincidentally picked a good time to sock away $61k for the long haul), then backdoor the after-tax contributions.

    What would be helpful is a guide to the compliance issues. A simple step-by-step for managing a MBDR through a solo 401k, including what forms to file, how to file, and when to file. I don't know what a 5500-EZ is, but I suppose I will have to learn. My concern is what else is out there that I may be missing? It can't be that complicated, but without a guide, it makes it tricky, and I think that if one existed, I would have found it by now. Hopefully someone smarter than I am on these matters takes the time to make one, as it would be very valuable for the community of self-employed physicians and small business owners.
    the challenge may be getting E*Trade to do their part correct. It sounds like they don’t have this clean yet. If you go forward in trying this, report back.

    Leave a comment:


  • Nash22
    replied
    Originally posted by spiritrider View Post
    • I see this advance of E-Trade into the MBDR space as significant. They are providing the same services for MBDR features that they and other mainstream one-participant 401k providers play for their plain vanilla offerings.
    • Just like with a plain one-participant 401k you are the administrator, but the major considerations are the amount and timing of contributions, affiliated employer issues and Form 5500-EZ filing if/when necessary.
      • As I mentioned previously, there is no IRS, tax software and contribution calculator support for maximum employee after-tax contributions at low to modest self-employed earned income.
      • Controlled/Affiliated Service Group issues are the same.
      • Form 5500-EZ issues are the same, but you will probably hit the filing limit sooner.
    • If E-Trade doesn't drop the ball on execution. I can't see any reason to pay a document reseller. When with E-Trade, you are getting the plan document, adoption agreement, custodial, record keeping and IRS reporting services all in one place for free.
    • I still see a value in TPAs for those uninitiated to the ins and outs of a one-participant 401k with MBDR and don't yet feel comfortable going at it alone.
    Thank you, this is basically my conclusion as well after a week or so of online research. I can see no reason to pay what is being referred to as a "document reseller" if there is still legwork to do on my part for compliance. If I am going to have to be responsible for any compliance at all, I would rather use the no cost option with E-trade, which is what I will do. Why would I pay for a service if I am still going to be responsible for compliance? I have not heard a good answer to this yet. The only reason I would do that is if I could mindlessly treat it like an IRA -- transfer my money and be done.

    My plan is open the account with E-trade this week, maximally fund it to IRS limits all at once for 2022 (seems like I have coincidentally picked a good time to sock away $61k for the long haul), then backdoor the after-tax contributions.

    What would be helpful is a guide to the compliance issues. A simple step-by-step for managing a MBDR through a solo 401k, including what forms to file, how to file, and when to file. I don't know what a 5500-EZ is, but I suppose I will have to learn. My concern is what else is out there that I may be missing? It can't be that complicated, but without a guide, it makes it tricky, and I think that if one existed, I would have found it by now. Hopefully someone smarter than I am on these matters takes the time to make a step-by-step "Managing a solo401(k) MBDR for dummies", as it would be very valuable for the community of self-employed physicians and small business owners.

    Leave a comment:


  • jacoavlu
    replied
    mysolo401k basically sells you a compliant plan document and helps you get setup. And they’ll provide you with forms and do your 1099 but you have to steer the ship. They don’t provide much guidance after setup. Not that they’re not knowledgeable. You get what you pay for.

    Leave a comment:


  • The White Coat Investor
    replied
    Originally posted by Timparsons952 View Post

    Jim- I had asked similar question to this thread a few months ago. At that time you had Mysolo401k on your recommendation page— gone now? Do you no longer recommend?
    Remember two things have to happen to get on our recommendation pages:

    # 1 We have to think they're good
    # 2 They have to pay us

    Mysolo401k has never been on our recommendation page. Because of # 2. But I think they do a nice job.

    Leave a comment:


  • Timparsons952
    replied
    Originally posted by The White Coat Investor View Post

    In the past I would say I don't think you're going to find a brokerage offering this for free. You're going to have to pay something. And you'll need more of a boutique firm. Should cost you less than $1000 to set up and just a few hundred a year though. You can start your search here:

    https://www.whitecoatinvestor.com/retirementaccounts/

    But I guess if eTrade is doing it now, why not try and let us all know how it goes. I've had a lot of complaints about eTrade service on solo 401(k)s over the years so expect some hassle.
    Jim- I had asked similar question to this thread a few months ago. At that time you had Mysolo401k on your recommendation page— gone now? Do you no longer recommend?

    Leave a comment:


  • The White Coat Investor
    replied
    Originally posted by Nash22 View Post
    I recently switched my contract from employee to independent contractor.

    As such, I am now 1099.

    If I understand correctly, I now have the ability to contribute the maximum limits via a solo 401(k) and convert all of this into a ROTH IRA via mega back door ROTH.
    First, this is true, and I should do it, correct?

    I already have an Roth IRA with Fidelity I have been using for backdoor ROTH for the past 3 years. Fidelity does not allow in plan conversions for their solo 401k, so I will have to look elsewhere, then I suppose roll it over eventually into my Fidelity ROTH IRA.

    Can anybody recommend the best brokerage for what I am trying to do?

    Thanks!
    In the past I would say I don't think you're going to find a brokerage offering this for free. You're going to have to pay something. And you'll need more of a boutique firm. Should cost you less than $1000 to set up and just a few hundred a year though. You can start your search here:

    https://www.whitecoatinvestor.com/retirementaccounts/

    But I guess if eTrade is doing it now, why not try and let us all know how it goes. I've had a lot of complaints about eTrade service on solo 401(k)s over the years so expect some hassle.

    Leave a comment:


  • spiritrider
    replied
    Originally posted by Harry Sit View Post
    The latest post on Bogleheads said E*Trade now hardcodes the non-deductible contribution election in the adoption agreement to "No" because they don't support it in their operations. For plans that selected "Yes" when it was an option, they didn't issue a correct 1099 form for the in-plan Roth rollover (no after-tax contribution in box 5).
    Interesting.

    When I downloaded E-Trade's individual 401k Adoption agreement on 4-25 (just four days ago) it defaulted to yes. It sounds like further information is required from E-Trade. "Do they or don't they.?

    Maybe this falls under the old adage; "If it sounds too good to be true it probably isn't."

    Leave a comment:


  • Hank
    replied
    Harry, great to see you posting here!!

    Leave a comment:

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