Once you permanently cease performing self-employment activity, the self-directed solo 401k will generally need to be closed down. If the solo 401k owne real estate that you do not want to liquidate, the solo 401k owned real estate can be transferred/directly rolled over in-kind to a self-directed IRA along with the rest of the funds in the plan. This way the property is not liquidated and continues to be held in a tax shelter retirement vehicle (the self-directed IRA).
Here are the steps involved in transferring a solo 401k owned property to a self-directed IRA:
First, open a self-directed IRA with a custodian that allows for real estate in an IRA.
Second, determine the fair market value (FMV) of the solo 401k owned property which can generally be based on comps in the area.
Third, complete the self-directed IRA custodians transfer form where you will list the property to be transferred in-kind from the solo 401k to the IRA.
Fourth, work with the county recorder granting the property from the name of the solo 401k to the name of the self-directed IRA custodian.
Fifth, the self-directed IRA custodian will book the asset in your IRA.
Reporting to the IRA the transfer of the Solo 401k including the real estate to the Self-Directed IRA
When a solo 401k is transferred to a self-directed IRA, required IRS reporting applies including the issuance of a Form 1099-R and final Form 5500-ez. While not all self-directed solo 401k plan providers will provide solo 401k closing reporting services, My Solo 401k Financial does provide this service which is included in their annual fee.
A Final Form 1099-R is Required
A Form 1099-R is used to report the non-taxable direct rollover of the solo 401k to the IRA. For client’s of My Solo 401k Financial, click here to complete our on-line form used to collect the necessary information to issue the Form 1099-R to report the non-taxable direct rollover of the solo 401k funds including the real estate to the self-directed IRA. Make sure to complete this online form by 12/31 as the Form 1099-R gets issued by January/February of the year following the movement of the solo 401k to the IRA.
A Final Form 5500-EZ
Regardless if the solo 401k value was over or under $250,000 at the time the self-directed solo 401k was transferred to the self-directed IRA, the IRS requires the filing of a final Form 5500-ez to formally close the solo 401k plan.
