Traditional IRA transfer to Solo 401k

Hello,

Helping someone who has a Traditional IRA at one company and has a Solo 401k plan with Fidelity (I think its called Keogh Plan but it is a self-employed 401k).

He's trying to consolidate accounts at Fidelity who tells him that he can move assets from Traditional IRA to the Keogh Plan as the Keogh Plan is a Qualified Plan.

Is that correct? 

Can he do that?

What are the pros and cons of doing this?

Thanks

yes, this can be done.   Many people do this to be able to borrow from the funds.    It also may help with pricing of an investment since it will add more assets to the account. 

8 hours ago, pensiongeek said:

.... It also may help with pricing of an investment since it will add more assets to the account. 

Thanks for your comment.

Not sure I understood what you meant by the above line.

Also, are there any cons in merging the IRA with Keogh?

A 5500EZ must be filed for a one-man plan with over $250K in assets.  Moving IRA money into the plan would make the plan hit that mark earlier.  That may or may not be a big deal depending on diligence and oversight.

Also, depending on the state, bankruptcy protection of IRA may not be as strong as qualified plan, so moving assets into plan could strengthen that protection.

By moving all IRAs into a qualified plan, an individual can then do another variant of a back door Roth IRA contribution, even if not otherwise eligible to contribute to a Roth and is above the income threshold for a deductible IRA.  Make a regular non-deductible IRA contribution and then immediately convert it to Roth.  No recovery ratio calc since there are no other IRAs and the basis equals the amount converted.

On 2/5/2021 at 7:19 AM, Bird said:

A 5500EZ must be filed for a one-man plan with over $250K in assets.  Moving IRA money into the plan would make the plan hit that mark earlier.  That may or may not be a big deal depending on diligence and oversight.

Thanks for the suggestion.

I asked and he is already filing 5500EZ. So that should be okay in this case.

On 2/5/2021 at 8:29 AM, CuseFan said:

Also, depending on the state, bankruptcy protection of IRA may not be as strong as qualified plan, so moving assets into plan could strengthen that protection.

Thanks for the advice, will keep that in mind..

On 2/5/2021 at 9:57 AM, shERPA said:

By moving all IRAs into a qualified plan, an individual can then do another variant of a back door Roth IRA contribution, even if not otherwise eligible to contribute to a Roth and is above the income threshold for a deductible IRA.  Make a regular non-deductible IRA contribution and then immediately convert it to Roth.  No recovery ratio calc since there are no other IRAs and the basis equals the amount converted.

This is interesting. 

So, if one has no IRA whatsoever and cannot make a deductible IRA contribution then use the above strategy. Can this not be done only ONE time because in the next year, one will have this Roth IRA that was created the previous year?

I'm told that he has a Roth IRA and another Trad IRA as well, I've asked him to go over his records and check..

10 hours ago, nkaufman said:

This is interesting. 

So, if one has no IRA whatsoever and cannot make a deductible IRA contribution then use the above strategy. Can this not be done only ONE time because in the next year, one will have this Roth IRA that was created the previous year?

I'm told that he has a Roth IRA and another Trad IRA as well, I've asked him to go over his records and check..

Not just one time.  In applying the recovery ratio to determine the taxable amount, the Roth IRA balance doesn’t count.  You can walk thru it with IRS Form 8606 and/or Google back door Roth.  

15 hours ago, shERPA said:

Not just one time.  In applying the recovery ratio to determine the taxable amount, the Roth IRA balance doesn’t count.  You can walk thru it with IRS Form 8606 and/or Google back door Roth.  

Thanks for the clarification.

I did some research and had found that i was incorrect. Now the goal is to make sure that he does not have any more Trad IRAs, 

Am surprised how many places he has retirement funds/accounts.. :-)