In-Kind Solo 401k Distribution to Satisfy Required Minimum Distribution (RMD)

May 21, 2017 | By Mark Nolan

Last Updated 2/7/2023

QUESTION:

I will turn age 73 soon and want to know if I have to take my solo 401k required minimum distribution (RDM) from my solo 401k, or I can just take it from my Traditional IRA. Also, I invested all of my solo 401k funds in real estate, so I don’t have any liquid funds to take out the RMD, so hence why I want to know if I can just take the RMD out of my IRA.

ANSWER:

The rules for taking required minimum distributions from a solo 401k are almost identical as the IRA RMD rules and that once you (the solo 401k participant) reach age 73, distributions must commence by April 1 of the following year. Following is more information on the RMD rules.

IMPORTANT NOTE: The RMD rules changed with the passage of the SECURE ACT, resulting in the RMD age being age 73 instead of age 72effective for distributions made in 2023 and subsequent years. Visit here to learn more.

The RMD amount applicable to the solo 401k must be withdrawn from the solo 401k plan directly not from your other IRAs. This is where the solo 401k RMD rules are different from the IRA rules. With IRAs, you can take the total RMD from one IRA if you have multiple IRAs. Not so with a solo 401k plan. The solo 401k RMD amount cannot be distributed from an IRA.

If you don’t have liquid funds in your solo 401k plan to satisfy the RMD, then you can take a partial, ink-kind distribution of an asset (e.g., real estate).

This would mean that, for example, if we are talking about a real estate property held inside a solo 401k plan, part of the property (a percentage and enough to satisfy the RMD amount) would be assigned in your name and you would pay taxes on the value of the partial property assigned to personally to you. In short, instead of receiving cash, you would receive part of the property to satisfy the RMD amount, and this amount would be subject to federal and state taxes.

The yearly required minimum distribution must be reported to the IRS on Form 1099-R. This reporting is generally provided by the solo 401k provider, and it is covered in their annual fee.