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At long last, I’ve finally gotten around to opening a Solo 401(k) with Fidelity. My primary motivation for doing this is to move pre-tax contributions out of my SEP-IRA and into a “qualified” plan so I can convert non-deductible Traditional IRA contributions into a Roth IRA with minimal tax consequences.
If you’re not sure what I’m talking about, take a look at these older posts, as I don’t want to re-hash everything here:
- Roth IRA Contribtion Limits: How the ‘Phaseout’ Works
- Roth IRA Conversion Limits Going Away
- Look Before You Leap: Roth IRA Conversions in 2010
- Using a Solo 401(k) to Facilitate Roth IRA Conversions
So now that you know why, let’s talk a bit about how.
My SEP-IRA is currently at Vanguard, and my preference would be to leave the funds in place. Unfortunately, Vanguard won’t accept a rollover from an IRA into a Solo 401(k) whereas Fidelity will. Thus, I’m making the switch.
I haven’t decided yet, but I might end up rolling it back from Fidelity, Vanguard does accept 401(k) to 401(k) rollovers, so I can always move the funds back at some point in the future.
Filling out the paperwork
In order to set up a Solo 401(k) with Fidelity, there are two key pieces of paperwork that need to be filled out. The first is the plan adoption form, and the second is the account application.
If you’re interested, you can access the forms here: link
Executing the rollover
Once I have the plan in place and the account opened up, I need doing the actual rollover. For this, I have two choices. I can either request a check from Vanguard and do a 60-day rollover, or I can do a trustee-to-trustee rollover.
While the latter is definitely a cleaner solution – it’s not reportable to the IRS – there’s another wrinkle… Fidelity can’t accept a trustee-to-trustee rollover to a 401(k) from an outside vendor.
The solution here is to either do the 60-day rollover, or open a Traditional IRA with Fidelity, do a trustee-to-trustee rollover, then move the funds from the Fidelity IRA straight into the Solo 401(k).
While this sounds rather complex, it only requires about 30 minutes of work on my part. After that I’ll be free to funnel money non-deductible IRA contributions into a Roth with a quick conversion.
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