Good 60-Day Rollover from a Solo 401k Plan Questions

QUESTION:

Can I withdraw funds from my solo 401k and then put them back within 60 days without being hit by the IRS with taxes and penalties?

ANSWER:

Good question and the answer is no because 20% of federal taxes has to be withheld even if rolled over within 60 days.

QUESTION:

I have a lot of questions on this front.

I guess the rules are different for a 401k than an IRA in that respect? Fidelity wrote me a check for the entire amount of my rollover IRA and did not withhold any taxes. They just asked me to affirm some statement that relieved them of that responsibility. I think.

ANSWER:

Correct that the 20% mandatory federal tax does not apply to IRAs but it does to 401k plans.

See following link regarding this rule:

http://www.mysolo401k.net/does-the-20-federal-tax-withholding-apply-to-all-401k-distributions/

QUESTION:

I assume I would get that withholding back when I file my tax return. Would the withholding amount be treated like any other estimated tax payment at that time? I would be allowed to go ahead and make up for the withholding from other funds when I deposit back into an IRA or a qualified plan, right?

ANSWER:

You  will get back some of the withholding if you don’t owe any other income tax as the 20% is treated as tax on earned income. Therefore, yes the 20% can be viewed as an estimated tax payment. Yes you can make up the 20% from your personal funds if timely rolled over within 60 days.

QUESTION:

Under what conditions is the 20% withholding required? Is it only for in-service withdrawals? Or are all distributions from 401k plans required to withhold 20%? Is the age of the account holder relevant?

ANSWER:

Generally only death and required minimum distributions (RMDs) are not subject to the mandatory 20% federal tax withholding. See the following link: http://www.mysolo401k.net/does-the-20-federal-tax-withholding-apply-to-all-401k-distributions/

QUESTION:

How about this strategy for fun? A direct rollover from 401k into IRA, then a distribution of the IRA with no withholding, then 60-days later a deposit back into the 401k?

ANSWER:

Yes that would be allowed and the 20% withholding would not apply.

RESOURCES

Solo 401k Distributions

Solo 401k Death Distributions

Solo 401k Required Minimum Distributions

Solo 401k Deadlines

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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