If you’re a Vanguard customer with an individual 401(k) / i401(k), you might be feeling a bit lost right now. But don’t worry, this guide will break down everything you need to know about Vanguard’s departure from the solo 401(k) space, plus a detailed, step-by-step guide on how to rollover your funds to another provider like Carry.

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Why is Vanguard is Saying Goodbye to Solo 401(k)s?

Vanguard’s decision to sell its solo 401(k) business to Ascensus has raised some questions within the financial community. While Vanguard has not explicitly stated the reasons behind this move, several factors could have contributed:

  1. Focus Shift: Vanguard might be shifting its focus to other areas of its business, such as its core mutual fund and ETF offerings.
  2. Market Competition: The solo 401(k) market has become increasingly competitive (including providers like Carry the are raising the bar with the overall user experience and helping people leverage all of the tax-saving benefits that come with solo 401(k)s), it’s possible Vanguard doesn’t see it as a major profit center anymore.
  3. Regulatory Changes: The regulatory landscape surrounding retirement plans is constantly evolving. Adapting to new regulations can be costly and complex, potentially influencing Vanguard’s decision.

Regardless of the reason, the bottom line is that if you have a Vanguard solo 401(k), it’s time to start thinking about where you want to move it.

Should You Stick with Ascensus or Explore Your Options?

Solo 401(k)s offer a ton of tax advantages and perks that aren’t available to everyone. However, that doesn’t mean every provider allows you or even makes it easy for you to leverage those things. So to start, when you’re comparing solo 401(k) providers, check to see if they allow:

  • Pre-tax contributions: This is where your contributions reduce your taxable income)
  • Roth contributions: You use post-tax dollars but can withdraw those funds in retirement tax-free, regardless of what that account grows into)
  • Mega Backdoor Roth: This is done using optional after-tax contributions and will allow you to invest up to $69,000 into a Roth account (for 2024) and enjoy tax-free withdrawals in retirement.
  • Ability to take out solo 401(k) loans: You can also take out loans from your solo 401(k) without early withdrawal fees.
  • Get up to a $1,500 tax credit: This is through the EACA tax credit but not all providers offer the features that can make you eligible.
  • Tax-free compounding: Zero taxes on any income or profits generated from your investments so 100% of your earnings go straight back into your account, tax-free).
  • Unrestricted investment options: Solo 401(k)s allow you to invest in any asset class including stocks and ETFs, or alternative assets like crypto, NFTs, real estate, or private equity.

I should mention, all of these things can be done with Carry.

Guide: How to Rollover Your Solo 401(k) from Vanguard to Carry

Step 1: Create your Carry account

The sign-up process is simple and only takes a few minutes (click here to compare our plans but all include the solo 401(k).

Step 2: Open a Carry Solo 401(k)

Once your Carry Solo 401(k) plan is finalized, open the investment accounts with Carry you’ll need (Solo 401k Pre-Tax, Roth, etc.)

Step 3: Sell Out of Your Positions

Temporarily sell out of your positions at Vanguard, as you will only be able to transfer cash. This will not be a taxable event, as the funds will be staying in the Solo 401k.

Step 4: Notify Vanguard

Let Vanguard know you have restated the plan and are transferring assets to a new custodian. You should emphasize that the 401k plan is not being closed, it will remain open, but the assets are moving from one account controlled by the plan at Vanguard to another account (with Carry’s integrated broker and custodian, DriveWealth).

Step 5: Letter of Acceptance

Typically Vanguard will require a “letter of acceptance” or other transfer paperwork from the new custodian, which we can work with you to provide, before they send the funds:

  1. We will work with you to sign and execute the transfer paperwork if Vanguard requires it.
  2. You’ll need to send the fully completed paperwork to Vanguard, typically via mail or fax, acting in your capacity as Plan Administrator and Trustee.
Step 6: Moving the Funds

Vanguard will then either mail a check or send a wire transfer, to the instructions on the Letter of Acceptance or that you give them (which you can find in the Carry application).  For a mailed check, we always suggest also asking them for a tracking number, so you know when it is actually sent and on its way.

Step 7: Making it Official!

You’ll be notified when we receive the funds. If the transfer includes funds of multiple tax types (for example, both pre-tax and Roth funds), send us a final statement or other transfer documentation and we will work with you to move the funds into the appropriate accounts.

Your Retirement, Your Way

Vanguard’s exit from the solo 401(k) market might seem like a bump in the road, but it could actually be a blessing in disguise. It’s a chance to find a retirement plan that truly works for you.

If you’re looking for top-notch customer service, an intuitive platform, and a hassle-free transfer process, we’d love to welcome you to Carry!

Have any questions or get stuck anywhere? Send us an email at support@carrymoney.com, we’re here to help!