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  • transitioning from SEP to 401k

    I just read WCI, am somewhat kicking myself for not reading it, and Bogleheads, and the Intelligent Investor sooner.

    I've been an ER attending as an independent contractor for almost 4 years.

    My question and need for advice is regarding the "loads" I have paid on my American Funds and continuing money lost in expense ratios (all less than 1)

    Every week that I'm not in index funds is wearing on my new financial brain.

    If I want to go to vanguard index funds, should I just sell/cash out all the funds and "start over" with indexes.

     

    I have about 92K in regular taxable acct and 195K in SEP---both hold the same reasonably allocated funds. the loads started off at 3.7% but are now a much lower "break-points" at 2. something. I've held all these funds since Februrary 2013.

    I started with a local state farm agent then...foolishly? signed up with Edward Jones when other agent retired. Edward Jones offers a solo 401K but I think the best option is to get it out of their greedy clutches.

    I want to do what makes most financial sense and not "lose out" on fees I've already paid.

    I put my monthly contributions to my SEP about 4.5K on hold while trying to make some decisions. My plan is to pay a fee-only advisor every year to sit down for a couple hours but to mostly do everything else myself.

    Can I transfer all these into a new Vanguard solo 401K then start remaining of this years contributions to a IRA and do Backdoor Roth?

     

    Thanks to anyone and everyone

  • #2
    I think you are being too hard on yourself. No idea of your age but be thankful that you found WCI now and not 10 years from now! All of us can look back and say "if only I had..." when what really matters is where you are today on your journey and that you do what you need to do now.

    There is a concept in accounting/economics called "sunk costs". The fees you have paid are sunk costs. Don't know that I would call you foolish...more likely, I would use the term "uneducated". Please realize that you have made very common mistakes, even though you are a doctor who is smarter than 99% of the population. It's ok and you can recover, so please try to quit beating yourself up. There is no way you cannot "lose out" and by trying to recoup your sunk costs, you will only dig yourself deeper into the hole. Nothing you can do other than to get over it, cut your losses, and move on. Harsh, I realize, but reality.

    So...yes, you should just sell out and get to where you want (need?) to be. Your definition of that is likely different than mine but you've got to decide, to the best of your ability, what your path is and follow it. or...find the appropriate financial planner who can help you make the decisions that are right for you.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3




      Can I transfer all these into a new Vanguard solo 401K then start remaining of this years contributions to a IRA and do Backdoor Roth?
      Click to expand...


      You cannot as far as I know roll a SEP IRA into a Vanguard solo 401k.  Vanguard does not support this option.  At my last check fidelity would let you roll a SEP IRA into a solo 401k.  I think but am not sure that you can roll a solo 401k at fidelity into a solo 401k at vanguard but I don't know what the benefit is when you can buy ETF Vanguard funds with Fidelity anyway (or you can buy the comparably similar/cheap Fidelity funds).  I personally started on this plan earlier in the year as I have a SEP at Vanguard and I am planning to move to Fidelity so I can start funding backdoor roths, but so far I have been lazy to get the process finished.  I fund my Vanguard SEP with automatic payments and fidelity 401k requires a paper check and form with each submission...

      Also, the Vanguard 401k mutual funds are limited to investor class shares with higher expense ratios.

      I agree with Johanna, your prior loads are sunk costs.  You can't take it back.  It isn't going to help you to hope that paying more for something makes it a better investment.  Just get rid of them.

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      • #4







        Can I transfer all these into a new Vanguard solo 401K then start remaining of this years contributions to a IRA and do Backdoor Roth?
        Click to expand…


        You cannot as far as I know roll a SEP IRA into a Vanguard solo 401k.  Vanguard does not support this option.  At my last check fidelity would let you roll a SEP IRA into a solo 401k.  I think but am not sure that you can roll a solo 401k at fidelity into a solo 401k at vanguard but I don’t know what the benefit is when you can buy ETF Vanguard funds with Fidelity anyway (or you can buy the comparably similar/cheap Fidelity funds).  I personally started on this plan earlier in the year as I have a SEP at Vanguard and I am planning to move to Fidelity so I can start funding backdoor roths, but so far I have been lazy to get the process finished.  I fund my Vanguard SEP with automatic payments and fidelity 401k requires a paper check and form with each submission…

        Also, the Vanguard 401k mutual funds are limited to investor class shares with higher expense ratios.

        I agree with Johanna, your prior loads are sunk costs.  You can’t take it back.  It isn’t going to help you to hope that paying more for something makes it a better investment.  Just get rid of them.
        Click to expand...


        That's partially true. In some circumstances it makes sense to open a trust account and get a custom plan document to allow you to open a solo 401k to invest at Vanguard (and you can invest in Admiral shares or even have a brokerage to invest in EFTs):

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

        Other than that, Fidelity would be fine as they do have a good number of low cost index funds available.

         
        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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        • #5
          I am planning to change in the next month or two from my sep ira managemed by our advisor to an individual 401k that I manage myself.  Just saw your post and curious if you've finished the process and have any advice.

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          • #6
            Just go ahead and sell the funds in your SEP/IRA today even if you have not changed brokerages.  You will pay no capital gains tax.  You need to figure out how much tax you will pay to sell the funds in your taxable account. If you are planning on using an advisor you might discuss this topic.  I still have some American Funds bought many years ago in my taxable account because of large gains. I would go ahead and sell any losing lots today also.

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