Solo 401K to Roth conversion

Submitted by Ron Verlan on Sat, 2019-11-16 01:03

Thanks in advance for your help.
I am self-employed and started a solo 401K account with a brokerage firm and contributed about $35K in the last year, 2018 (both employee and employer portions). This year I do not have much income to contribute to 401K. Am I allowed to convert all 401K ($35,000) account into Roth-IRA and pay taxes without any penalty. I prefer this option as I do not have much income in this year.
Brokerage says, I am not allowed to convert until I reach retirement age or close my business. I do not think this is correct. If I am right, we are allowed to convert full or partial portion of 401K to ROTH anytime.

Thank you



Submitted by William Tuttle on Sat, 2019-11-16 04:11

  • You are not entirely right. The brokerage may or may not be entirely right.
  • IRS regulations prohibit the in-service rollover of employee deferrals prior to age 59 1/2.
  • IRS regulations permit but do not require plans to allow in-service rollovers of vested employer contributions and employee after-tax (non-Roth) contributions prior to age 59 1/2.
  • All of the low-cost one-participant prototype 401k plan providers, place restrictions on in-service rollovers. E.g. Fidelity does not allow any in-service rollovers prior to age 59 1/2.
  • So it is entirely possible you are not allowed to do any in-service rollovers to a Roth IRA.
  • There is an alternative to accomplish what you want. E-Trade supports in-plan Roth rollovers (IRR). This allows you to rollover any pre-tax employee deferrals or employer contributions to the designated Roth account within the plan.
  • You could amend your current one participant 401k plan to E-Trade, open accounts under that plan, do trustee -> transfers from the old plan’s accounts to E-Trade’s accounts.
  • Then you could do IRRs of the pre-tax assets to the designated Roth account. The assets would retain the distributable nature of the source accounts.
  • If you want to do this for 2019. You should start moving on it soon.

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