Does anybody perform Roth Conversions with Schwab?
I’m at Etrade now with a Solo 401k and a Roth IRA. They won’t perform a backdoor conversion from the 401(k) to the Roth. So I’m considering a transfer to another broker.
So I called a local Schwab rep who said they do it. Because I’ve had too much experience with finance “pros” I called their Retirement Services to check his claim. They said not doable online. Interesting because Youtube vids show people doing it, although I’ve not seen one involving a 401k.
I’m confused. What type of back door conversion are you talking about here? Are you making after-tax contributions to your Solo 401(k), and then wanting to convert those after tax contributions into a Roth account? If so, that’s typically called a Mega back door, not just a back door. And your Solo 401(k) would first have to be set up to take after tax contributions (not typical), and then, would have to be set up to allow for in service distributions from the 401(k) so you could move it to the Roth IRA.
Or are you just wanting to move pre-tax money from your Solo 401(k) to your Roth IRA? If that’s the case, your Solo 401(k) would again need to be set up so that you could make an in-service distribution. Depending on the brokerage’s rules, your money may need to stop in a Traditional IRA first, and then get moved to the Roth IRA. (Edited to add: This type of conversion is just a conversion, not a back door conversion.)
Or are you trying to just get pre-tax money in your Solo 401(k) moved to a Roth sub-account in your 401(k), and not necessarily your Roth IRA? If so, then your Solo 401(k) needs to be set up to make in-plan conversions. Or, it might be easier to just make contributions directly into the Roth sub-account, rather than doing the pre-tax contributions and then converting them. (Edited to add: This type of conversion is just a conversion, not a back door conversion.)
Edited to add: When referencing a back door conversion (other than a mega back door conversion), it generally only refers to moving an after tax contribution to a Traditional IRA into a Roth IRA, and does not have anything to do with employer plans like 401(k)s.
So, I think before trying to find out how a specific brokerage processes work, you probably need to provide a better definition of what specifically you want to do.
Okay, this is a conversion - nothing back door about it. Is there are reason you specifically want to move it to your Roth IRA instead of into a Roth sub-account in your 401(k)? I just ask because it might be easier to get your 401(k) set up to have a Roth sub-account than to get it set up for in-service distributions.
The language of your plan document for the 401(k) has to allow it. You need to confer with your broker to see if they included this language in their Solo 401(k) documentation. That’s why I said it might be easier to just get your 401(k) changed to a plan with a Roth sub-account and allows in-plan conversions. That seems to be something that more brokers are starting to offer as their base level plan, without having to pay extra for those options.
I can do conversions (partial) using Schwabs’ 401k distribution paperwork. It has to be filled in, scanned and uploaded. So it’s doable with the existing Roth IRA. Unfortunately they don’t allow the conversion completed strictly online. So the paperwork process is required each time a partial conversion is requested.
I checked in with Retirement Services who said your idea is a great one for adding the Roth option to the 401k. I got pretty excited until he explained the IRS hasn’t confirmed how they want to address conversions inside a 401k program. He added that Schwab is monitoring IRS progress and sure the option will be added soon.
I’m the plan admin so I’ll add the Roth option when the conversion regs have been put in place.
Yeah, I’m not sure I’ve seen the ability to do a conversion from a pre-tax employer plan to a Roth IRA totally online, even at the same brokerage. I know someone who has a very good Traditional Fidelity 401(k) from a large employer. They still have to call to talk to a representative every time they want to do a conversion from their 401(k) to their Fidelity Roth IRA. Calling is probably less hassle than filling out paperwork and uploading it, so you might want to ask if that would be an option, too.
Interesting. Since multi-employee 401(k)s have been able to offer in-plan conversions as an option for many years, I’m a little surprised that the Schwab Solo 401(k) isn’t able to yet. Hopefully, it will occur soon.
What is the downside to doing a straight partial rollover to an IRA at Schwab or where ever? Then he could do partial conversions on his own when it makes sense for his situation.
There would probably be some additional time out of the market because of moving the money twice. That could be either a downside or an upside, depending on what happens in the market during those moves. Other than that, if it can be done totally online (which is what I think @Bimmer325 is looking for), there wouldn’t be any issue.
For the 401 to IRA, it would probably be time delayed if they can’t do a direct transfer.
Once it is the trad IRA, he can do conversions online.
When I was doing Roth conversions, they were all immediate. Most of my earlier conversions were on the phone with a rep. I could see the shares disappear/appear online as they were moved. My last few conversions were online and they all immediately moved.