Author Topic: SE 401k- PT employee  (Read 1557 times)

tralfamadorian

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SE 401k- PT employee
« on: March 28, 2016, 12:19:36 PM »
I'm self employed and I would like to open a SE 401(k).

As a bit of background, for most of the year it is just me but around the holidays I hire a PT employee to help with increased order volume, usually a college student from one of the local universities in my area.  The government mandates that I am not required to offer a 401(k) to an employee who is younger than 21 (they usually are) or has worked less than 1,000 hours in a year (it's typically less than a 1/10 of that).

I've had a heck of a time trying to find a plan that allows both roth conversions (thinking ahead to a future roth pipeline after FIRE) and a policy that allows me to open an account with them though I have a PT employee during a portion of the year.

I've spoke to the following and this is what they have said:

Fidelity- Employee okay, No rollover

Vanguard- No employee, No rollover

TD Ameritrade- Rollover allowed, No employee

Charles Schwab- No rollover

E*Trade- Rollover allowed, No employee


Giving up the employee is not really an option.  Around the busy season, I'm already working 12-14hrs/day, 7 days/week and I need the help. 

SEPP withdrawals are a possibility but I would have to build a substantially largest 401(k) to have the yearly withdrawal the same I would with an account that I could take 4% from.  And the lack of flexibility in the required withdrawals is obviously not ideal.

Has anyone else run into this issue?  Workarounds?  Other plan providers to call? 

bacchi

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Re: SE 401k- PT employee
« Reply #1 on: March 28, 2016, 01:46:53 PM »
What's a Roth conversion have to do with with a SE 401k?

1) Rollover 401k into traditional IRA.
2) Convert traditional IRA into Roth.
3) Let it bake for 5 years.
4) Profit.

Isn't it this easy? Why would you want to convert into a 401k? Or I'm misunderstanding your question?

tralfamadorian

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Re: SE 401k- PT employee
« Reply #2 on: March 28, 2016, 02:04:28 PM »
What's a Roth conversion have to do with with a SE 401k?

1) Rollover 401k into traditional IRA.
2) Convert traditional IRA into Roth.
3) Let it bake for 5 years.
4) Profit.

Isn't it this easy? Why would you want to convert into a 401k? Or I'm misunderstanding your question?

Can there be a situation/plan in which a portion of a 401k cannot be rolled over into an IRA (your step 1)?  Or is it an inherent characteristic of all 401k's that this is possible?  When I spoke to the salespeople at these various firms, they made the impression that it could not. Or I was just misunderstanding them.

bacchi

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Re: SE 401k- PT employee
« Reply #3 on: March 28, 2016, 02:20:16 PM »
https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

I'm not sure what you asked them or what scenario you gave.

Fwiw, I just rolled over a Fidelity SE 401k into a Vanguard SE 401k, which isn't allowed according to what you were told.

Did you maybe ask if you could rollover while the business was still active and you were still contributing? That's not encouraged.

tralfamadorian

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Re: SE 401k- PT employee
« Reply #4 on: March 28, 2016, 04:24:55 PM »
Did you maybe ask if you could rollover while the business was still active and you were still contributing? That's not encouraged.

I did not specify but it's entirely possible that I mentioned something like "10 years from now..." when I'm still approximately 30 years from a traditional retirement age so that is what they presumed.

Thank you for the chart and your time, bacchi!  I usually like to consider myself a numbers person but I was all turned around when I was looking at this before. 


So, a summary for anyone in the future that goes searching around the MMM forums who is self employed with one, non-spouse, PT employee that does not meet the mandatory qualification guidelines and wants a SE 401(k), Fidelity was the only plan sponsor available when I called all the companies listed at the top of the thread.