2 Year & 5 Year Self-Directed Solo 401k Access to Profit Sharing Rules for Distribution or Conversion to a Roth IRA

An often overlooked rule, employer profit sharing self-directed solo 401k Contributions are subject to stringent distribution rules such as the following:

1) The occurrence of a Hardship,

2) The attainment of age 59 ½

3) The employer contributions being withdrawn have been accumulated in the solo 401k plan for at least 2 years; or

4) The participant has participated in the solo 401k plan for at least 5 years.

QUESTIONS: 

  1. I am interested in rolling over the solo 401k employer contributions and earnings in my Solo 401k to a Roth IRA.
    1. The account was opened in 2017, and contributions were made in 2017 and Dec 26 2018.
    2. Does this mean I can now withdraw (for rollover to Roth IRA) the entire pre-tax employer contribution account, including all earnings therefrom based on the 2 year accumulation rule?

        ANSWER:

    3. Yes or convert the funds to a Roth IRA. 
    4. For purposes of the 5 year rule, given that the plan  was set up in mid-2017 (first contribution May 29, 2017) will I be eligible to rollover the employer pretax balance on that basis January 1st 2022, May 2022, or Jan 1 2023?   ANSWER: 
    5. The clock starts as of January 1 regardless of when the in the year the contribution was made; Therefore, yes you could distribute or convert the profit sharing employer contributions in 2022. 

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About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>

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