Can I take a 60-day distribution from my solo 401k?

QUESTION:

Can I take a 60-day distribution out of my solo 401k account? What time frame do I have to return the amount distributed without facing a penalty?

ANSWER:

The distribution rules are different for a 401k including a solo 401k than an IRA.

60-day rollover

While you can take a 60 day rollover distribution from the solo 401k and then rollover/deposit the funds back into the solo 401k, a 20% mandatory federal tax has to be withheld from the solo 401k distribution and wired to the Department of Treasury even if you plan to rollover the funds back to the solo 401k. As a result, you will only be able to rollover/deposit 80% of the funds from the distribution back into the Solo 401k unless the 20% deficit is covered by you personally.

Direct rollover

However, if the solo 401k distribution is paid in a direct rollover to an eligible retirement plan, including an IRA the distribution won’t be subject to the 20% federal tax withholding because the check is not made payable to you directly.

The one-rollover-per-year rule does not apply to solo 401k plans

While the one-rollover-per-year does not apply to solo 401k plans like it does to IRAs, it is not advantageous to process them from a solo 401k plan because of the mandatory 20% federal tax withholding.

The one-per year rollover limit does not apply to:

  • Traditional Solo 401k plans to Roth Solo 401k plan conversions
  • Solo 401k trustee-to-trustee transfers to another Solo 401k
  • IRA-to-solo 401k plan rollovers
  • Solo 401k plan-to-IRA rollovers
  • Solo 401k-to-solo 401k rollovers

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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