Solo401k with both Roth and PreTax funds - Possible? and How?

Question

* I hope this is not a double post, thought I had this posted but it isn't showing up.Hi,

Just checking to see if anyone else has this situation and how they are handling it.

I have a solo401k setup with checkwriting with Fidelity and I have rolled over an old pre-tax 401k into it several months ago.

Recently I have changed jobs and now the 401k from this last company is now able to be rolled over to this solo401k.  The catch is that in this old 401k it is a combined pretax and roth... roughly a 50%-50% split of each.

I've been told by Fidelity that I can rollover the whole thing into my non-prototype account (solo401k) which currently is only 100% pretax funds, however it would be up to me to keep detailed records on which percentage is roth and which is pre-tax.

Is anyone else having this issue and how is it being handled?  Don't wanna get into trouble down the road.

I considered opening a separate account for the 'Roth' only funds within the solo401k, and Fidelity said i couldn't do that.  (if I understood correctly).

I've been reviewing my plan documents and I think it allows it, but it's hard for me to decipher the 'legalese'.

Let me know what you think.

Justin Windham · Answer

@David Chance

I second the recommendation to keep the pre-tax and Roth funds in separate accounts opened for the 401k trust.

Yes, you can open an account with Solera using the same paperwork you used to open an account with Fidelity.

The 5500-EZ threshold of $250k includes all plan assets regardless of whether those assets are in multiple accounts or varying asset classes. It is the total amount you have within the 401k whether it's cash, stocks, or real estate value.

Brian Eastman · Answer

@David Chance

The 5500-EZ filing requirement applies to plan value, so the sum of all accounts/investments you hold with the plan.

It sounds like you have a fully self-directed Solo 401(k).  Who set that up for you?  They should be able to assist with questions of this nature as part of their services.

Dmitriy Fomichenko · Answer

David,

I strongly recommend that you keep your Roth funds in a separate account from your pre-tax rollovers. If you have a truly self-directed Solo 401k you can have as many accounts as you need. This will make accounting very easy, otherwise it could be accounting nightmare unless you have really good software in place for tracking.

Regarding the comments from Fidelity, they can't tell you what to do or limit the number of accounts you open for your 401k. They are simply holding your 401k funds, they are not the custodian of the funds. As plan trustee and administrator you have that responsibility. If they are giving you hard time you should consider other banking options. We have been recommending Solera bank to our clients, they have excellent system in place to assist self-directed clients and have a division in the bank setup specifically for that. Reach out to Kreighton Reed, bank's VP who can personally assist you with your Solo 401k banking needs:

https://www.biggerpockets.com/users/Kreighton

George Blower · Answer

@David Chance

It is actually an IRS regulation to keep the "Roth Designated" funds in a separate holding account.

Many of our clients have used Fidelity for this and some even have three different brokerage accounts at Fidelity--one each for after-tax funds, pre-tax funds, and Roth funds.

Also, to learn more about the Form 5500-ez requirements, see the following.

https://www.irs.gov/forms-pubs/about-form-5500-ez

Dmitriy Fomichenko · Answer

David, hopefully the flowchart below will help you get a better understanding of the truly self-directed Solo 401k plan. Plan assets are held in a trust, trust can own brokerage account at Fidelity, checking account at Solera bank, a promissory note, a single family residence, another account at Solera for your Roth funds, a separate account for your spouse rollovers (if she is also plan participant), etc, etc.

David Chance · Answer

Good news... Thanks!

David Chance · Answer

Dmitriy,

Thank you for your response.  You are definitely a 'Go-To' guy for questions related to solo401ks.

Just to clarify, using the same paperwork that I used to open up the account with Fidelity, I can use to open an account with Solera?

Also, do I file the 5500EZ only when either account goes about $250k (assuming I open a Solera account), or if both combined goes above $250k?

Thanks

David Chance · Answer

sounds good... I'll definitely check into using Solara.

David Chance · Answer

Thanks Dmitriy!

The diagram is a great visual and helps to show an overview of how it works.

Solo401k with both Roth and PreTax funds - Possible? and How?

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