Roth Solo 401k Real Estate Transfer to Roth IRA Prior to RMD 70 1/2

QUESTION:

Can the Roth self directed solo 401k (CONTAINING real estate investment) be ROLLED OVER into a self-directed Roth IRA prior to 70 ½ to avoid the RMD requirement? 

ANSWER:

Yes based on current regulations as of the date of this blog post. However, if you have had the Roth 401k for less than 5 years at time of rollover, the ROTH IRA 5 year clock would apply. Therefore, if you have had the Roth IRA for 5 years the Roth IRA clock would have already been met. But if you are opening the Roth IRA for the first time at the time that the Roth solo 401k is being transferred to the Roth IRA, the 5 year clock would start over again. 

 

Solo 401k Investment Options | Investing in Bitcoin

Solo 401k Investment Options Question: What is the easiest way for me to buy Bitcoin from My Solo 401k Financial?

We don’t sell bitcoinSolo 401k providers are not bitcoin dealers.

Also, while others in the industry promote that retirement funds can be invested in bitcoin, this is not based on direct guidance from the IRS that bitcoin is an approved investment option for Solo 401k retirement funds. In other words, the IRS has not come out with any language that specifically says bitcoin is an allowed investment in retirement accounts. Instead, this position is a merely an interpretation that the IRS would consider bitcoin to be an approved investment of retirement funds by inferring from existing IRS guidance on how gains from investment of non-retirement funds in bitcoin will be taxed.  Moreover, there have been calls for the IRS to issue more guidance on investing in alternative investments such as bitcoin (see recent GAO Report: Improved Guidance Could Help Account Owners Understand the Risks of Investing in Unconventional Assets) . Given the fact that IRS has not yet ruled or provided any guidance on bitcoin investments, one can’t say with 100% certainty that investing solo 401k funds in bitcoin investments would be considered an allowable investment.

Independent Contractor Solo 401k – SEP IRA Rollover to 401k

QUESTION: I am an independent contractor who is eligible to open a Solo 401k.  Unfortunately, I missed the December 31st Solo 401k deadline.  I currently max out my annual SEP IRA contribution (~$59k/year). If I put this $59k into my SEP IRA, how long do I need to wait before this money can be rolled over to the Solo 401k?

ANSWER: While you are correct that the deadline to establish a Solo 401k has passed, you can rollover funds from the SEP IRA to the Solo 401k without any waiting period.  For example, see the IRS Rollover Chart which makes clear that you can rollover funds from a SEP IRA to a qualified plan such as our Solo 401k plan.  Please note that we handle rollover process as part of our standard Solo 401k pricing for no additional charges.

Moving a Promissory Note IRA Investment to a Solo 401k Plan: Method 1 Rollover

Self-Directed IRAs are very popular for investing in promissory note investments.  As a result, when an individual  investor starts performing self-employment activity and thus qualifies to open a solo 401k, he or she will often transfer their self-directed IRA that holds promissory notes to a solo 401k plan.

There are two methods of moving a self-directed IRA that holds promissory notes to a solo 401k plan.  The self-directed IRA can either be transferred to a solo 401k via a “rollover” or via a “trustee-to-trustee transfer.”  Method 1 is discussed below and method two will be discussed in a separate blog post.

Method 1 (one): 60-day Rollover

When a promissory note held inside a self-directed IRA held with a custodian such as Pensco Trust, Millenium Trust Company or Equity Trust Company, to name few , is moved by way of a 60-day rollover, the following applies:

  1. The self-directed IRA custodian will prepare an assignment/change of ownership to basically remove itself as the custodian/trustee of the IRA owned promissory note investment.
  2. The self-directed IRA custodian will mail the promissory note assignment/change of ownership to the IRA participant.
  3. The IRA participant then has 60-days form the date he or she receives the promissory note assignment/change of ownership in the mail to rollover the promissory note to their solo 401k plan.
  4. The solo 401k trustee (the self-employed individual) will then prepare an assignment with the help of his or her tax professional before the expiration of the 60-day rollover window to formally approve the assignment of the promissory note investment from the self-directed IRA to the new solo 401k plan.
  5. The new assignment assigning the promissory note to the solo 401k plan generally contains the following pertinent language:
  • Assignor/Transfer: the IRA participant
  • Assignee: The solo 401k . For example, if the name of the solo 401k is Niners Solo 401k Trust and the trustee of the plan is Sally Joyner, the assignee is listed as: Sally Joyner, Trustee of Niner Solo 401k Trust.
  • Date: the date the assignment is executed is listed.
  • Signatures: The IRA participant sings once as the assignor, and a second-time on behalf of the solo 401k as the assignee because he or she is the trustee of the solo 401k.

Once the promissory note has been assigned to the new solo 401k within the 60-day IRA rollover window, and assuming only one 60 day rollover has been processed during a 12 month period which applies to all IRAs in aggregate, the promissory note borrower will need to update their records to now reflect the solo 401k as the note lender/beneficiary.

Lastly, the IRA participant/owner will need to report the 60-day rollover on his or her Form 1040 since the IRA custodian probably issued a 1099r with a code 1 or 7 not a G. The IRS may send the IRA participant/owner  a letter in about a year or two after asking him or her to provide supporting documentation for the rollover since a 1099r with a code 1 or 7 would have been issued.

More Funds Flowing to 401k Plans Including Solo 401k Plans

It is true that Americans are not saving enough and according to a study by Transamerica Center for Retirement Studies, the average baby boomers who is starting to retire has a median of $147,000 in his or her retirement accounts.  However, according to a recent survey, the Plan Sponsor Council of America found that in 2015 those who had access to a 401(k) through their employer contributed 6.8 percent of their salaries into a 401k, which is increase from 6.2 percent in 2010.

While this may sound like a small increase percentage, it represents a 10 percent increase  in the amount flowing into 401k plans including solo 401k plans over just a 5 year period, which translates to billions of dollars. According to the Investment Company Institute, almost $7 trillion is already invested in 401k plans including solo 401k plans.

Experts recommend saving from 10 percent to 15 percent of your salary over your career.  We have seen an increase in annual contributions by our solo 401k clients . The reason for this we have found is that they can contribute throughout the year or wait up until their business tax return due date to make the full contribution.

Compare ROBS Competitors – Guidant Financial Reviews | Benetrends Reviews

I am considering using a ROBS 401k to buy a business and have been researching Guidant Financial Reviews, Benetrends Reviews, and the major players in this space.  What sets My Solo 401k Financial apart?

Put simply what separate us from our competition is the following:
  • Expertise:  Since 2009, My Solo 401k Financial has been providing this service.  Our team is led by our Founder/Compliance Officer Mark Nolan who has over 20 years experience in the industry & George Blower (attorney, Harvard Law).  Our Owners are very hands-on in ensuring that your 401k Business Financing plan is set up quickly and correctly.  
  • Service:  Based on our client feedback (e.g., A+ BBB rating with no complaints, etc.), this leads to a better service experience for our clients.    Rather than a sales person who may be focused on signing you up now and who may not be there in the long run, you will be working directly with the owners of the company throughout the entire business funding transaction.  As fellow entrepreneurs, we know how critical it is to fund your business as quickly as possible in a compliant fashion and with responsive service.  We are not focused on “closing the sale” but rather have a long-term view.
  • Reputation: The entire My Solo 401k Financial team works very hard to maintain our Pristine Reputation with no negative reviews! We are grateful that our customers and others have recognized our experience, expertise & customer service in selecting us over other options that are available to them.

    • Please visit our Why Us page to see examples of customers whom we have helped fund their business with retirement funds with our 401k Business Financing plan.
    • We have received “5-Star” & “A plus” ratings from the Better Business Bureau (BBB) and have never received a single customer complaint served against us as confirmed by the BBB.  This is based on over 30 glowing and unfiltered customer reviews. Click here to read our customer reviews. 
    • See our Yelp page where we have received 100% 5-star ratings for all customer reviews.

      

  • Competitive Pricing: Our fees are generally $2500 less than our competitors in the first year alone.  

 

Reporting Roth Solo 401k Distributions

First available in 2006,  the number of participants eligible to take distributions from Roth 401k designated accounts through their employers or Roth solo 401k plans for those who are self-employed has been minimal but will begin to pick in the coming years.

Designated Roth account assets must satisfy the distribution requirements applicable to elective deferrals (i.e., employee contributions) under the plan. For example, Roth solo 401k contributions are fully vested, are subject to required minimum distributions (RMDs), and cannot be distributed until the solo 401k participant meets a distribution triggering event under the plan (e.g., termination of employment, death, disability).

When a 401k or solo 401k plan participant takes a distribution from a designated Roth account, the participant must review a 402(f) notice, which outlines the tax and rollover options available upon plan distribution.

1099-R Reporting of Roth 401k or Roth Solo 401k Distributions

What is more, any distributions of Roth 401k or Roth Solo 401k assets must be reported on a separate Form  1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., as follows.

  • Box 1, Gross Distributions – Enter the gross distribution amount.

 

  • Box 2a, Taxable amount – Enter the taxable amount of the distribution.

– If the distribution is a qualified distribution, enter 0 (Zero).

– If the distribution is a nonqualfied distribution, enter the taxable amount (i.e., the earnings) distributed.

  • Box 4, Federal income tax withheld – Report any federal income tax withheld on a nonqualified distribution.

 

  • Box 5, Employee contributions/Designated Roth contributions or insurance premiums – Report the basis portion of the distribution.

 

  • Box 7, Distribution codes – Enter code B, Designated Roth account distribution, plus any adjoining applicable code.

 

  • Box 11, 1st year of desig. Roth Contrib., – Report the first year of the five-taxable-year period.

Rollovers to SIMPLE IRAs Liberalized by The Consolidated Appropriations Act of 2016

The Consolidated Appropriations Act of 2016 changed the rules for SIMPLE IRAs. This new act permits rollovers of distributions from Traditional IRAs (not Roth IRAs) and employer sponsored retirement plans (including solo 401k plans), 403(b), and governmental section 457(b) plans into SIMPLE IRAs after the expiration of the two-year period that begins on the date the employee first participated in the employer’s SIMPLE IRA plan. This new rule went into effect after December 18, 2015. Before this new rule was promulgated, distributions from employer-sponsored retirement plans and Traditional IRAs could be rolled over to SIMPLE IRAs.

Before satisfying the two-year period (during which distributions from a SIMPLE IRA also are subject to an additional 25 percent early distribution penalty tax), only distributions from a SIMPLE IRA may be rolled over to a SIMPLE IRAs.

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