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Opening a Solo 401(k) at Fidelity and Rolling Over My SEP-IRA

Written by Nickel - 7 Comments

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:

So now that you know why, let’s talk a bit about how.

Why Fidelity?

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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Published on November 15th, 2010
Modified on February 9th, 2011 - 7 Comments
Filed under: Retirement, Saving & Investing, Taxes

About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

7 Responses to “Opening a Solo 401(k) at Fidelity and Rolling Over My SEP-IRA”

1
Brian Says:
November 15th, 2010 at 11:01 am
I’ve been doing this myself and this morning learned there is a another form to transfer from the Fidelity IRA to the Fidelity Self-Employed 401k called the Single Asset Withdrawal Form. I’d advise you call Fidelity and have a retirement specialist walk you through the form… there were things they had me fill out on the form which weren’t apparent from the form itself.
2
Nickel Says:
November 15th, 2010 at 12:26 pm
Yes, I’ve already spoken to them about this final form, and forgot to mention it. Once the money is in your Fidelity IRA, you fill out the Single Asset Withdrawal Form and send it in. The good news is that they can do that final rollover pretty much immediately upon receipt of the form.

I haven’t yet reviewed the form, but I appreciate the heads up about needing to call for clarification. Thanks!
3
Brian Says:
November 16th, 2010 at 12:02 pm
No problem. I look forward to hearing about your experience rolling over the Fidelity Solo 401k to the Vanguard Solo 401K, should you choose to go that route. Like you, I’m moving assets from Vanguard over to Fidelity to separate the basis for a Roth conversion, and I hope to move it all back to Vanguard once the financial gymnastics are complete.
4
RVM Says:
December 2nd, 2011 at 12:31 pm
Hello Nickel,

This is exactly what I’m trying to do, but I’m in a little bit of a bind. I have a sizeable SEP-IRA at Vanguard and its existence will effect my 8606 taxes generated by my instant $5000 non-deductible traditional IRA conversion to a Roth IRA unless I somehow move this money out of SEP-IRA status.

Here’s my problem: I already have an Individual 401k at Vanguard because I love that Vanguard’s has the ROTH option. But because Vanguard doens’t have rollover capability into the Individual 401k Plan, I decided to open a Solo 401k with Fidelity. For several weeks, I have been seeking confirmation that having both of these plans simultaneously won’t pose a problem. Do you know? I assume that as long as I don’t exceed the annual contribution limits, it should be completely fine, but I’m concerned.

Thank you!
RVM
5
Nickel Says:
December 2nd, 2011 at 1:16 pm
I’m honestly not sure if this will cause a problem. The workaround, just to be safe, would be to move the Vanguard Solo 401(k) to Fidelity, and then move the SEP-IRA money in over there. If you really wanted to be at Vanguard in the long run, you could then move the Fidelity Solo 401(k) — which now contains the original 401(k) + SEP-IRA funds — back over to Vanguard.

If you don’t want to try this maneuver, then you might try asking your original question over on the Fairmark.com tax discussion boards. I’ve often found that to be a very helpful source of tax infomation.
6
RVM Says:
December 4th, 2011 at 2:42 pm
With Vanguard not allowing rollovers, how could I move the Fidelity Solo 401k to a Vanguard Individual 401k? I don’t think I can do that, right? Thanks for the tip on Fairmark!
7
Nickel Says:
December 4th, 2011 at 2:45 pm
RVM; Vanguard doesn’t allow you to roll an IRA into a 401(k) held at Vanguard. But you should be able to transfer your 401(k) to another provider if you wish. So you could transfer to Fidelity, roll the IRA into the 401(k) — even if the IRA is at Vanguard, this should be okay. And then, if you want to complete the roundtrip, transfer the 401(k) back to Vanguard.

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