Who is Not Required to Take a 2019 RMD by December 31?

While most solo 401k owners who are 70 ½ or older will need to take a 2019 required minimum distribution (RMD) by December 31, 2019. However, that deadline does not apply to all solo 401k owners. Solo 401k owners who are age 70 ½ or over are not required to be take an RMD from their solo 401k by the upcoming December 31 deadline if you just reached 70 1/2 in 2019. Generally, when you reached age 70 ½ you must take an RMD. However, for the first year you catch a break. You do not have to take your 2019 RMD until your Required Beginning Date (RBD) which is April 1, 2020. This is only a one-time exception. All future Solo 401k RMDs must be taken by December 31. However, there is a downside to waiting until 2020 to take your 2019 RMD. You will need to take your RMD for 2019 by April 1 and the 2020 RMD for your second distribution calendar year by December 31. That means two taxable distributions, which would need to be included in income so you won’t be able to spread your tax liability over 2019 and 2020 if you took your 2019 RMD in 2020.

With respect to reporting the solo 401k RMD on your Form 1040 tax return,, if you take the 2019 RMD this calendar year, reporting is due when you file your 2019 personal tax return, which will be April 15, 2020.  If you wait to take your 2019 RMD in 2020, then both RMDs (2019 & 2020) will be due on your 2020 personal tax return, which would would be filed by April 15, 2021.

Lastly, don’t get confused with the IRA RMD aggregation rules which allow the IRA owner to aggregate all her IRA balances and take the RMD one IRA. This same rule does not apply to qualified plans such as a solo 401k plan. The RMD due from the solo 401k must be withdrawn from the solo 401k plan, not from your IRA  or from your current employer 401k plan if you also have a full-time job and participate in that employer’s 401k plan.

Investing a Self-Directed IRA in Notes Vs Investing a Solo 401k Plan in Notes

After physical real estate, investing retirement funds such as self-directed IRA and solo 401k funds in promissory notes secured by real estate (also known as trust deeds) is quite popular.

Investing in notes is especially attractive for those not looking to contend with the challenges that can arise with real estate. Challenges from making sure the property remains occupied  to actually managing the property. With note investments, the self-directed IRA or the solo 401k plan is effectively acting like a bank since the funds are loaned out to an unrelated third-party.

SIMILARITIES of Investing a Solo 401k or a Self-Directed IRA in Promissory Notes:

Since the retirement account is making the note investment, the note investment cannot be to a disqualified party such as the retirement account participant, her spouse, parents,children, grandchild, and her business, to name a few.

The promissory note can be structured as a secured or unsecured note. It is preferable to invest in notes secured by real estate in the event the borrower cannot make the note payments. In which case, the retirement account will take over the property.

When processing the funding of the promissory note, the funds have to flow from the retirement account directly to the borrower, not your personal or business bank account, as doing so would result in a taxable event.

The note investment must be documented in writing and list the retirement account as the lender (beneficiary).

A note interest rate that will benefit the retirement account must be charged while also not running afoul with the usury rules.

All note payments must be deposited directly into the retirement account not your personal bank account.

DIFFERENCES of Investing a Solo 401k or a Self-Directed IRA in Promissory Notes:

It is generally easier and less costly to invest in notes via solo 401k plan over a self-directed IRA.  For example, because the solo 401k owner is the trustee of the plan and thus manages the solo 401k bank account, she can process the funding of the note by wiring a check to the borrower from the solo 401k bank account or submit a wire directive to the bank.  On the other hand, if the investment is done through a self-directed IRA the IRA custodian will charge a transaction fee, a wire fee and an ongoing note holding fee.

When titling the note investment, the self-directed IRA custodian is listed as the lender (beneficiary) for the benefit of the IRA.  If processed through the solo 401k plan, tile is taken in your name as trustee of the solo 401k plan. Click here to learn more on how to title the note investment.

The promissory note instrument is safe-kept by the solo 401k owner. With an IRA, the self-directed IRA custodian safe-keeps the note paperwork and charges a holding fee for doing so.

The promissory note payments flow to the solo 401k bank account instead of the self-directed IRA custodian for deposit into your IRA.


Consider Using Roth IRA for College Savings

With college tuition increasing each year, utilizing a Roth IRA to cover some of those college costs may be be a good idea. Also, Roth IRA contributions will not affect the amount of financial aid your student receives because Roth IRA contributions are not tax deductible.

Roth IRA Distributions

Roth IRA contributions can be distributed at any time tax and penalty free and used for any purpose including paying for college. What is more, Roth IRA earnings can also be distributed penalty free (i.e., the 10% early distribution penalty does not apply even if you are under age 59 1/2 at time of the distribution); however, federal and state taxes still apply unless you are both age 59 1/2 or older and meet the 5 year holding requirement which would allow for tax free distribution for earnings.

What is an Educational Institution?

Any college, university, vocational school, or other postsecondary educational institution eligible to participate in the student aid programs administered by the U.S. Department of Education, which generally includes all accredited, public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions.

Other Options

If you are self-employed and participate in a solo 401k plan, you can take a participant loan up to the applicable limit (50% of account balance or maximum amount of $50K.) from the solo 401k and use those funds for any purpose including to pay for higher education expenses.


TCJA Impact to Alimony Payments from Solo 401k Plans

In addition to impacting IRAs, the Tax Cuts and Jobs Act (TCJA) of 2017 (TCJA) also impacts alimony payments from solo 401k plans. Prior to 2019, the alimony payer (i.e. the solo 401k participant) received an above-the-line deduction and the recipient treated the alimony as income.  Now any divorce agreements adopted on or after January 2019 no deduction for alimony payments are allowed, and alimony payments are not treated as income.

This essentially means that the rules are now more favorable to the payee but results in higher tax liability to the payer (i.e., the solo 401k participant).  What is more, alimony payments no longer can be treated as earned income for the receiving spouse so the funds can no longer be used for IRA contributions purposes effective January 1, 2019.

Highlights of Pending The Retirement Security and Savings Act of 2018

Jointly sponsored by Senators Rob Portman (R-OH) and Ben Cardin (D-MD), the Retirement Security and Savings Act of 2018  is considered as sweeping as prior bills (Economic Growth and Tax Relief Reconciliation Act of 2001 and the Pension Protection Act of 2006). It will be interesting to see which parts of the bill if any will be approved in 2019.

Here are some of the key provisions in the bill:

  • Create a new automatic-enrollment/automatic-escalation safe harbor for 401(k)-type plans with higher contribution levels
  • Provide a small employer tax credit for implementing automatic enrollment
  • Simplify participant notices in automatic-enrollment type plans
  • Liberalize the saver credit for contributions to employer-sponsored plans and IRAs, and make it refundable and payable to a retirement account
  • Liberalize employer plan eligibility rules for less-than-full-time workers
  • Apply certain retirement plan nondiscrimination tests (e.g., top-heavy) separately to part-time employees
  • Allow nonspouse retirement account beneficiaries to do indirect (60-day) rollovers to inherited IRAs
  • Exempt small aggregate retirement balances ($100,000 or less) from required minimum distributions (RMDs)
  • Increase the RMD age in stages to age 75
  • Reduce excise tax for RMD failures from 50 percent to 25 percent, and under certain circumstances to as low as 10 percent
  • Reduce, under certain circumstances, the excise tax for IRA excess contributions from six percent to three percent
  • Exempt earnings on timely-removed IRA excess contributions from the 10 percent excise tax on early (pre-59½) distributions
  • Modernize the mortality tables that dictate RMD amounts
  • Enhance the small employer tax credit for establishing a retirement plan
  • Provide an employer tax credit for implementing automatic employee re-enrollment every three years
  • Treat certain student loan repayments as qualifying for employer matching contributions to a retirement plan
  • Treat employer-provided retirement planning services received in lieu of compensation as nontaxable
  • Allow an employer to make additional nonelective contributions to SIMPLE IRA plans
  • Allow self-correction of more inadvertent retirement plan operational failures
  • Expand the investments suitable for 403(b)(7) custodial accounts
  • Allow “de minimis” incentives to employees to contribute deferrals to certain employer-sponsored plans (without being considered to violate the contingent benefit rule)
  • Provide a second, higher catch-up deferral amount for those contributing at age 60 or older (current basic catch-up eligibility begins at age 50)
  • Raise the maximum qualifying longevity annuity contract (QLAC) contribution amount (amount excludable from RMDs) from $125,000 to $200,000
  • Allow certain annuities that feature accelerating payments to satisfy RMD requirements
  • Enhance the ability to partially annuitize retirement benefits
  • Authorize a study and report to Congress on current reporting and disclosure requirements
  • Consolidate certain defined contribution retirement plan notices
  • Simplify retirement plan distribution notice requirements
  • Exempt retirement plans from required recoupment of inadvertent overpayments to participants, and legitimize the rollover of such amounts
  • Allow custodial accounts of terminating 403(b)(7) plans to remain subject to 403(b)(7) rules, rather than requiring distribution from the account to the owner
  • Allow greater flexibility to use base pay for determining retirement benefits (excluding certain overtime pay)
  • Allow Roth-type deferral contributions to be made to SIMPLE IRA plans
  • Permit an employer to apply catch-up deferral eligibility requirements separately to legitimate separate lines of business
  • Liberalize the substantially equal periodic payment rules to allow transfers or rollovers between certain qualified plans if net periodic distributions (e.g., annual) comply with the distribution schedule
  • Enhance the ability of terminating employees to contribute payments for accumulated sick leave, vacation pay, severance or back pay to a deferral-type retirement plan
  • Permit the merger or transfer of plan assets from qualified retirement plans into 403(b) plans
  • Exempt designated Roth accounts in employer-sponsored plans (e.g., Roth 401(k), Roth 403(b)) from RMD requirements
  • Extend the qualified charitable distribution exemption from taxation to include SEP, SIMPLE IRA, qualified retirement, 403(b), and governmental 457(b) plans
  • Permit rollovers from Roth IRAs to employer-sponsored plans including solo 401k plans, with directive to the Secretary of the Treasury to modify the regulations to permit
  • Permit a spouse beneficiary of an employer-sponsored retirement plan account to elect to be treated as the employee for RMD purposes
  • Address certain interest crediting rates, mortality rates, and PBGC premiums for defined benefit plans


For Third Quarter of 2018 Retirement Assets Total $29.2 Trillion

According to a report released on December 20, 2018 by the Investment Company Institute (ICI),Retirement Assets Total $29.2 Trillion in Third Quarter. This is an increase of 2.8 percent from the previous quarter. The report goes on to say that retirement funds make up 33% of household financial assets as of the end of September 2018.

Here are some more items found in the report:

Assets in individual retirement accounts (IRAs) totaled $9.5 trillion at the end of the third quarter of 2018, an increase of 3.0 percent from the end of the second quarter of 2018. Defined contribution (DC) plan assets (note that solo 401k plans fall under this category) were $8.1 trillion at the end of the third quarter, up 3.3 percent from June 30, 2018.

Americans held $8.1 trillion in all employer-based DC retirement plans on September 30, 2018, of which $5.6 trillion was held in 401(k) plans. In addition to 401(k) plans, at the end of the third quarter, $550 billion was held in other private-sector DC plans, $1.0 trillion in 403(b) plans, $332 billion in 457 plans, and $606 billion in the Federal Employees Retirement System’s Thrift Savings Plan (TSP). Mutual funds managed $3.7 trillion, or 67 percent, of assets held in 401(k) plans at the end of September 2018. With $2.3 trillion, equity funds were the most common type of funds held in 401(k) plans, followed by $1.0 trillion in hybrid funds, which include target date funds.

The quarterly retirement data tables are available at “The US Retirement Market, Third Quarter 2018.”


Interesting IRA Rollover and 401k Rollover Statistics for 2018

The Investment Company Institute (ICI) release data on December 19, 2018 regarding IRA rollovers and 401k rollovers from businesses. To view the full report, CLICK HERE, and visit here for a summary from the ICI’s website.

Here are some of the findings included in the report:

  • One-third of US households owned IRAs in 2018. More than eight in 10 IRA-owning households also had accumulations in employer-sponsored retirement plans. More than 60 percent of all US households had either retirement plans through work or IRAs, or both.
  • More than one-quarter of US households owned traditional IRAs in 2018. Traditional IRAs were the most common type of IRA owned, followed by Roth IRAs (owned by about 18 percent of US households) and employer-sponsored IRAs (owned by 6 percent).
  • IRA-owning households cover a wide range of incomes. In 2018, the majority of IRA-owning households had incomes less than $100,000: 12 percent had household incomes less than $35,000 and 40 percent had household incomes between $35,000 and $99,999.
  • Most traditional IRA–owning households have a planned retirement strategy. Nearly two-thirds of traditional IRA–owning households indicated they have a strategy for managing income and assets in retirement. Typically, these strategies have many components, often including reviewing asset allocations, determining retirement expenses, developing a retirement income plan, setting aside emergency funds, and determining when to take Social Security benefits.

Roth IRA Turned 20 in 2018 & 16 Roth IRA Facts

Roth IRA contributions were first allowed in 1998 as a result of The Tax Relief Act of 1997 which created the Roth IRA. The Roth IRA was named after the now deceased Senator William Roth, Jr. (R-Del.) who lobbied the most for it.

Here are some facts regarding the Roth IRA:

1. You can be over age 70 1/2 and still  make Roth IRA contributions, provided you  (or your spouses) have earned income.

2. Only your earned income level affects your ability to contribute to the Roth IRA.

3. You receive no immediate tax benefit when contributing to a Roth IRA, unless you qualify for a federal income tax credit as claimed on IRS Form 8880.

4. Roth IRA  withdrawals  are tax-free subject o ordering rules, age 59 1/2 and having had the Roth IRA for 5 years.

5. Special ordering rules apply to Roth IRA withdrawals: contributory assets come out first, conversion/rollover assets next, and earnings last.

6. Roth IRA rules are not subject to required minimum distributions RMDs.

7. As of 2018, approximately 20 million people own a Roth IRA.

8. As of 2018, Roth IRAs receive more regular (and catch-up) contributions than Traditional IRAs:  6.3 million taxpayers made regular contributions to Roth IRAs, compared to 4.3 million to Traditional IRAs.

9. As of 2018, the Roth IRAs rules have been updated 20 times sine 1997.

10. Roth 401k, Roth 457b and Roth 403b assets can be rolled to a Roth IRA.

11. Rollovers (Less than 2% )from employer-sponsored retirement plans to Roth IRAs are not as popular as direct rollovers to Traditional IRAs (close to 10%).

12. Other IRAs and retirement plan assets can be converted to Roth IRAs.

13. Roth IRA assets cannot be transferred to a Roth 401k including (see IRS Publication 590) a Roth solo 401k.

14. Roth IRA conversions dramatically increased in 2010 to nearly 10 times the amount converted in 2009 probably because the $100,000 income ceiling for conversions was eliminated.

15. Roth IRA distributions (about 4%) are very low compare to Traditional IRA distributions.

16. Younger folk seem to prefer Roth IRAs over traditional IRAs–probably because the potential of higher tax brackets after 2025.

Year End Items for IRAs and Solo 401k Plans

Now that the first year of the Tax Cuts and Jobs Act (TCJA) is almost past us, some IRA and solo 401k items to consider include the following.


While a solo 401k plan will need to be opened by December 31 in order to be able to wait until next year to make solo 401k contributions, an IRA can be opened for 2018 and funded by April 15, 2019. This will afford you time to plan which IRA to contribute to, whether a traditional IRA, Roth IRA or both. The maximum 2018 contribution is $5,500 plus an additional $1,000 who were 50 or older by year-end 2018.


While IRA contributions and solo 401k contributions can be made next year, both IRA and solo 401k distributions will need to be made by the end of the 2018 to count as occurring in 2018. This includes RMDs, as if not taken by 12/31/2018 a 50% penalty for failure to take the 2018 RMD may apply. Distributions take from either an IRA or a solo 401k plan in the case of pre-tax funds will be added to other taxable income and taxed at applicable marginal rates.


While qualified charitable distributions (QCDs) apply to IRAs, they do not apply to solo 401k plans. However, in order for QCDs to apply to IRAs, the IRA owner or beneficiary has to be age 70 1/2 or older, and the annual limit for 2018 is $100,000 per person. The QCDs count toward RMDs.

Conversions of Pretax Funds

The Tax Cuts and Jobs Act (TCJA) lowed the federal income tax rates from 2018 through 2025. As a result, 2018 is a year that many IRA and solo 401k owners are processing Roth solo 401k and Roth IRA conversions because they are now less taxing. Pretax IRA or solo 401k funds converted to a Roth account will be treated at earned income tax rates, but with the lower tax rate the tax hit won’t be as large. For example, in 2018 a married couple filing jointly can have taxable income (after deductions) between $77,400 and $165,000 and remain in the 22% tax bracket.  On another note, because of the the TCJA starting in 2018 Roth IRA conversion can no longer be unwound (recharacterized) which has never been an option for Roth solo 401k conversions.

A solo 401k may be a good way to bridge the gap between minorities saving for retirement

A solo 401k may be a good way to bridge the gap between minorities saving for retirement according to a report by the Center for Retirement Research of Boston College. Here are some findings.

  • The earnings and wealth gaps between whites and minorities are enormous.
  • In 2016, the share of whites at risk in retirement was 48 percent vs. 54 percent for blacks and 61 percent for Hispanics, smaller than the earnings/wealth disparities.
  • The retirement gap is smaller simply because minorities have a lower pre-retirement standard of living to maintain.
  • From 2007-2016, retirement risk for all three groups increased, but the gap between whites and blacks narrowed while Hispanics fell further behind.

Visit here to read the full report.

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