Hello,
Requesting feedback on whether establishing a solo 401(k) makes sense in my situation, or if there's anything I'm missing. Details follow and thanks!
Background: I will soon be laid off from a large consulting company, but I have the financial resources and support from my working wife to take some extended time off. We can also can use one or more "low" income years to drain a post-Secure Act 2.0 inherited IRA. If not for the issue below, I would just leave my retirement assets in my current employer's 401(k) plan.
Issue: My wife works for a financial firm that places limits on what we can hold. The passive equity index in my employer's 401(k) plan is acceptable while I am working there, but will become a prohibited holding once I am no longer an employee. I could roll over the pre-tax funds to a IRA, but that would cause issues with future backdoor IRA contributions due to the pro-rata rule.
Proposed Solution: Open a solo 401(k) through Schwab or Fidelity (I have holdings at both), and roll over my current 401(k) plan to that plan. It appears that there are no fees, and the only "gotcha" is needing to file IRS Form 5500 annually since assets would be over $250K. I will not make any contributions in 2024 (will have already reached the max), and may/may not make contributions in 2025 based on independent consulting work before likely going back to a W-2 job later that year.
Questions:
(1) Is there anything that I'm missing here or that I should be aware of?
(2) I haven't seen any significant differences between Schwab and Fidelity. For those that have used these accounts, have you had any issues?
Requesting feedback on whether establishing a solo 401(k) makes sense in my situation, or if there's anything I'm missing. Details follow and thanks!
Background: I will soon be laid off from a large consulting company, but I have the financial resources and support from my working wife to take some extended time off. We can also can use one or more "low" income years to drain a post-Secure Act 2.0 inherited IRA. If not for the issue below, I would just leave my retirement assets in my current employer's 401(k) plan.
Issue: My wife works for a financial firm that places limits on what we can hold. The passive equity index in my employer's 401(k) plan is acceptable while I am working there, but will become a prohibited holding once I am no longer an employee. I could roll over the pre-tax funds to a IRA, but that would cause issues with future backdoor IRA contributions due to the pro-rata rule.
Proposed Solution: Open a solo 401(k) through Schwab or Fidelity (I have holdings at both), and roll over my current 401(k) plan to that plan. It appears that there are no fees, and the only "gotcha" is needing to file IRS Form 5500 annually since assets would be over $250K. I will not make any contributions in 2024 (will have already reached the max), and may/may not make contributions in 2025 based on independent consulting work before likely going back to a W-2 job later that year.
Questions:
(1) Is there anything that I'm missing here or that I should be aware of?
(2) I haven't seen any significant differences between Schwab and Fidelity. For those that have used these accounts, have you had any issues?
Statistics: Posted by CashConfessions — Wed May 29, 2024 11:08 am — Replies 7 — Views 465