Clarification on Vanguard Solo 401(k) rollover

[FirstHabit]

On the topic of backdoor Roths and strategies to clear out pre-existing IRAs. Jim has mentioned several times that Vanguard doesn't allow IRA rollovers to an Individual 401(k). I was looking into this a bit more and found some further explanation.

https://thefinancebuff.com/vanguard-solo-401k-rollover-from-ira.html (read the comment section from the link)

So, with IRAs there are two components: (1) "THE PLAN" and (2) "THE ACCOUNT." Each of these has different rules. So the Vanguard 401(k) PLAN does allow for rollovers, but the Vanguard 401(k) ACCOUNT does not. I thought that was enlightening. Would be interested in others' comments. It just bugs me to have to use yet another separate brokerage (Fidelity or Schwab) since I've got all the rest with Vanguard.

[spiritrider]

Mainstream one-participant 401k providers use one basic plan document for many different types of employers and implementations. The plan document provides the rules under which all features are administered.

The adoption agreements and custodial account policies control what features are available. Just because the basic plan document provides for rollovers, Roth accounts, employee after-tax contributions, liberal in-service withdrawals, loans, etc... doesn't mean they will all be available to one-participant plan adoptees.

In fact, we find that each mainstream provider offers different combinations of features, even though their plan documents are remarkably similar and in some cases identical, because they are using the same third party document provider.

[litovskyassetmanagement]

FirstHabit wrote:

On the topic of backdoor Roths and strategies to clear out pre-existing IRAs. Jim has mentioned several times that Vanguard doesn’t allow IRA rollovers to an Individual 401(k). I was looking into this a bit more and found some further explanation.

https://thefinancebuff.com/vanguard-solo-401k-rollover-from-ira.html (read the comment section from the link)

So, with IRAs there are two components: (1) “THE PLAN” and (2) “THE ACCOUNT.” Each of these has different rules. So the Vanguard 401(k) PLAN does allow for rollovers, but the Vanguard 401(k) ACCOUNT does not. I thought that was enlightening. Would be interested in others’ comments. It just bugs me to have to use yet another separate brokerage (Fidelity or Schwab) since I’ve got all the rest with Vanguard.

Click to expand...

I've addressed the Vanguard solo 401k in detail here:

whitecoatinvestor.com/improving-the-vanguard-individual-401k-with-a-customized-plan

This is about all you can do with Vanguard at this point.  It will work for some, but not for others.  If you are maxing out your solo 401k, and you insist on doing it at Vanguard, you can follow the directions in the link above on how to get a fully customized solo 401k at Vanguard.

[Dicast]

FirstHabit wrote:

It just bugs me to have to use yet another separate brokerage (Fidelity or Schwab) since I’ve got all the rest with Vanguard.

Click to expand...

I've been through the same thought process and general irritation you are experiencing.  I use Fidelity and the only real downside I have seen is the requirement to send individual checks in for contributions instead of electronic funding.  You can buy practically anything through the brokerage option, they have low expense ratio funds similar to vanguard and the customer service is excellent if you need it.

[spiritrider]

You can do electronic funding at Fidelity in a two step process with a phone call.

• Open a cash management account (CMA) under the same name as the business.
  
  
  
  • Initiate an ACH pull from your other financial institution's account by 4:00pm ET.
  
  
  • It will be in the CMA account by the morning of the next business day.
  
  
  • Call and transfer the funds to the SE 401k account.
  
  
  
  

[Dicast]

spiritrider wrote:

You can do electronic funding at Fidelity in a two step process with a phone call.

• Open a cash management account (CMA) under the same name as the business.
  
  
  
  • Initiate an ACH pull from your other financial institution’s account by 4:00pm ET.
  
  
  • It will be in the CMA account by the morning of the next business day.
  
  
  • Call and transfer the funds to the SE 401k account.
  
  
  
  

Click to expand...

When you use this pathway does it all count as employer contribution or is there a way to specify?  In the past Fidelity has site "record keeping" as the need for the paper forms. I only make employer contributions in any case.

[spiritrider]

I haven't made contributions in a while, but when I did you cold indicate it over the phone.