Last Updated: January 15, 2025
Distribution Rules Determined by Fund Source Types
A Self directed Solo 401k from My Solo 401k Financial allows for distributions provided they fall under the IRS statutory rules. In other words, the solo 401k account holder/participant may make distributions from the plan provided the IRS rules allows for it.
Different distribution rules apply based on the account holder’s age and contribution types (e.g., employee versus employer contributions as well as rollover funds).
Also, for certain types of events–such as, death, disability or the severance from self-employment (i.e., you are no longer self-employed), distributions may be made regardless of your age or the source of funds in the solo 401k plan.
To distribute funds for other reasons, it depends on the type of contribution used to fund the account. Generally, plans funded with employee contributions including Roth contributions are less accessible under the law than plans funded with employer/profit sharing contributions.
Types of Solo 401k Contributions and Distribution Rules
- After-Tax Contributions and Rollover Contributions. The solo 401k plan participant may withdraw at any time (after completing a distribution form), all or any portion of her account balance attributable to “rollover contributions” and/or “after-tax contributions.”
- Employer Contributions: Employer contributions are subject to more stringent distribution rules and may be distributed upon the solo 401k participant’s severance from employment, death, or disability. In addition, employer contributions may be withdrawn upon the occurrence of any of the following events:
1) The occurrence of a Hardship,
2) The attainment of age 59 ½
3) The employer contributions (both pre tax profit sharing and Roth profit sharing) being withdrawn have been accumulated in the solo 401k plan for at least 2 years; or
4) The participant has participated in the solo 401k plan for at least 5 years.
- Salary Deferrals (employee contributions): Any employee contribution (including any earnings on such amounts) may not be distributed prior to the solo 401k participant’s severance from employment, death, or disability. However, the solo 401k plan permits an in-service distribution of such amounts upon attainment of age 59 ½ or upon a Hardship.
How to Report Self-Directed Solo 401k Distributions & Submitting the Mandatory 20% Federal Tax
The Solo 401k plan distribution will need to be reported several ways and on different dates, and taxes paid by the 15th of the month following the date of the Solo 401k distribution.
By January 31, 2026: You will need to file Form 945 Annual Return of Withheld Federal Income Tax. You can obtain form by clicking on: http://www.irs.gov/pub/irs-pdf/f945.pdf
Where to file Form 945: Filing depends on your state of legal residence not on the state where you open Solo 401k. Therefore, if your state of legal residence is California, Texas or California, for example, you must mail Form 945 to:
Department of the Treasury
Internal Revenue Service
Ogden, UT
84201-0042
On the other hand, if your state of legal residence is Florida, Massachusetts or New York, for example, you must mail Form 945 to:
Department of the Treasury
Internal Revenue Service
Cincinnati, OH
45999-0042
To find the filing location for your state of legal residence, refer to “Where To File” section of the Form 945 instructions.
For instructions on how to fill out Form 945, CLICK HERE.
By your tax return due date: Report Solo 401k distribution on your tax return
By February 28: File form 1099-R with the IRS, filed by My Solo 401k Financial and copy sent to you for filing with your personal tax return. For non clients of My Solo 401k Financial, you should check with your Solo 401k provider regarding the furnishing of form 1099-R to the IRS.
Paying the mandatory 20% federal tax amount on Solo 401k distribution:
- Must be paid by the 15th of the month following the date of the Solo 401k distribution
- Must pay tax electronically
- Electronic fund transfers are made using the Electronic Federal Tax Payment System (EFTPS).
- If you do not want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make deposits on your behalf.
- EFTPS is a free service provided by the Department of Treasury. To get more information or to enroll in EFTPS, call 1-800-555-4477.
- You can also visit the EFTPS website at www.eftps.gov. Additional information about EFTPS is also available in Publication 966.
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CLICK HERE for useful steps in enrolling with EFTPS in order to pay the 20% mandatory federal tax.
Deposit record. For your records, an Electronic Funds Transfer (EFT) Trace Number will be provided with each successful payment. The number can be used as a receipt or to trace the payment.
Depositing on time. For the tax payment made by EFTPS to be on time you must initiate the deposit by 8 p.m. Eastern time the day before the date the deposit is due. If you use a third party to make a deposit on your behalf, they may have different cutoff times.
Distributions from Spouse Account QUESTION: My wife and I are both Trustees on the solo 401k and we both hold funds in the plan. Can I take distributions from her account at age 59 1/2 as she is much younger than me without the consequence of early withdrawal penalties?
Good question; however, no the rules do not allow for one spouse to piggyback of the other spouse's age when making solo 401k distributions.
Transfer Solo 401k Funds to an IRA QUESTION: Can I transfer funds from my Solo 401K to my IRA without withholding taxes being paid? I transferred money from my IRA to my Solo 401K without any withholding.
Generally, unless you are age 59 1/2 or over, only amounts that were previously transferred your solo 401k from other IRAs or former employer plans can be transferred to an IRA. These are IRS statutory rules. If you qualify, the movement of solo 401k funds or assets to an IRA is reportable to the IRS on Form 1099-R as direct rollover but it is not taxable as long as the funds and/or assets are directly deposited to the IRA.
Multiple Distributions QUESTION: Suppose I distribute $10,00 from my Solo 401k account and pay the $2,000 in tax and then Rollover the $10,000 back to my Solo 401k account within 60 days. If I later withdraw another $10,000 do I have to pay another $2,000 (20%) tax?
Yes, as the mandatory 20% federal tax withholding separately applies to each solo 401k distribution amount. This true even if the funds are returned (rolled over) to the solo 401k within 60 days. In other words, 60 day rollover solo 401k distributions are still subject to the mandatory and upfront federal tax withholding rule even if the plan is to rollover the funds back to the solo 401k within 60 days of the distribution.
60-Day Distributions QUESTION: With my solo 401(k), please assume I did a withdrawal for a rollover on 3 DEC 2022, and then made the completing deposit on 28 JAN 2023 (56 days later) back into the same account. Given the 1-year waiting period before doing another rollover, on what date could I subsequently do another withdrawal to START another rollover?
You can do as many 60 day rollovers from a 401k plan as the rules are not the same as for IRAs. However, you still have to pay the 20% mandatory tax upfront regardless if the funds are rolled back within 60 days. This is probably why the IRS does not apply to same IRA rollover rules to 401k plans since IRAs are not subject to the mandatory 20% withholding requirement.
Federal Income Tax Bracket QUESTION: I was under the (perhaps false) impression that the amount of tax I would pay upon taking a distribution depended on my current federal income tax bracket. In other words, if I am still working for another company and my salary puts me in the 30% federal tax bracket, I would need to pay 30% of the distribution as federal tax. However, your article describes a mandatory 20% federal tax on the distribution. Which is it?
The 20% is a federal tax withholding amount is based on the solo 401k distribution amount that gets submitted to the Department of the Treasury by the 15th of the month following the date of the solo 401k distribution.
The 20% gets credited towards your income taxes due by April 15 of 2024, for example, if you take a distribution in 2023.
As a result, you still may owe more taxes on the 401k distribution amount or you may get some back in a form of a tax refund from the IRS.
Lastly, while 20% is the mandatory withholding amount, if you wish you can certainly withhold more than 20% from the solo 401k distribution and submit it to the government by the 15th of the month as described above.
Distributions for Seniors Form 1040SR QUESTION: Can solo 401k distributions taken by seniors be reported on Form 1040SR?
Yes beginning in 2019. In the past, individuals had to report certain types of income (including IRA and employer solo 401k plan distributions) on the more complex Form 1040, U.S. Income Tax Return, or Form 1040A, U.S. Income Tax Return. Individuals age 65 and older may now use the simpler Form 1040SR to report income such as capital gains and losses, interest or dividends, distributions from solo 401k retirement plans, and Social Security benefits.
Hardship Distribution QUESTION: I find myself in need of a hardship withdrawal. What are the parameters under which I am able to do this - Specifically relating to home mortgage.
The purpose of exercising the hardship distribution option under a qualified retirement plan such as a solo 401k plan is to be able to gain access to solo 401k funds before you reach age 59 1/2.
Note that our solo 401k plan allows for distributions of any funds that you transferred form IRAs or former employer plans even if you are under age 59 1/2.
Please note that hardship distributions are still subject to taxes (federal, and possibly state taxes depending on your state of residence). Hardship distributions from 401k plans including solo 401k plans are also subject to the 10% early distribution penalty if you are under age 59 1/2 at time of the distribution.
I you qualify for the the solo 40k distribution, please let us know so that we can provide the the distribution form and procedure.
For information on the firs-time home-buyer hardship distribution rules, please see the following:
Distributions from Spouse Account QUESTION: My wife and I are both Trustees on the solo 401k and we both hold funds in the plan. Can I take distributions from her account at age 59 1/2 as she is much younger than me without the consequence of early withdrawal penalties?
Good question; however, no the rules do not allow for one spouse to piggyback of the other spouse's age when making solo 401k distributions.
Transfer Solo 401k Funds to an IRA QUESTION: Can I transfer funds from my Solo 401K to my IRA without withholding taxes being paid? I transferred money from my IRA to my Solo 401K without any withholding.
Generally, unless you are age 59 1/2 or over, only amounts that were previously transferred your solo 401k from other IRAs or former employer plans can be transferred to an IRA. These are IRS statutory rules. If you qualify, the movement of solo 401k funds or assets to an IRA is reportable to the IRS on Form 1099-R as direct rollover but it is not taxable as long as the funds and/or assets are directly deposited to the IRA.
Multiple Distributions QUESTION: Suppose I distribute $10,00 from my Solo 401k account and pay the $2,000 in tax and then Rollover the $10,000 back to my Solo 401k account within 60 days. If I later withdraw another $10,000 do I have to pay another $2,000 (20%) tax?
Yes, as the mandatory 20% federal tax withholding separately applies to each solo 401k distribution amount. This true even if the funds are returned (rolled over) to the solo 401k within 60 days. In other words, 60 day rollover solo 401k distributions are still subject to the mandatory and upfront federal tax withholding rule even if the plan is to rollover the funds back to the solo 401k within 60 days of the distribution.
60-Day Distributions QUESTION: With my solo 401(k), please assume I did a withdrawal for a rollover on 3 DEC 2022, and then made the completing deposit on 28 JAN 2023 (56 days later) back into the same account. Given the 1-year waiting period before doing another rollover, on what date could I subsequently do another withdrawal to START another rollover?
You can do as many 60 day rollovers from a 401k plan as the rules are not the same as for IRAs. However, you still have to pay the 20% mandatory tax upfront regardless if the funds are rolled back within 60 days. This is probably why the IRS does not apply to same IRA rollover rules to 401k plans since IRAs are not subject to the mandatory 20% withholding requirement.
Federal Income Tax Bracket QUESTION: I was under the (perhaps false) impression that the amount of tax I would pay upon taking a distribution depended on my current federal income tax bracket. In other words, if I am still working for another company and my salary puts me in the 30% federal tax bracket, I would need to pay 30% of the distribution as federal tax. However, your article describes a mandatory 20% federal tax on the distribution. Which is it?
Distributions for Seniors Form 1040SR QUESTION: Can solo 401k distributions taken by seniors be reported on Form 1040SR?
Yes beginning in 2019. In the past, individuals had to report certain types of income (including IRA and employer solo 401k plan distributions) on the more complex Form 1040, U.S. Income Tax Return, or Form 1040A, U.S. Income Tax Return. Individuals age 65 and older may now use the simpler Form 1040SR to report income such as capital gains and losses, interest or dividends, distributions from solo 401k retirement plans, and Social Security benefits.
Hardship Distribution QUESTION: I find myself in need of a hardship withdrawal. What are the parameters under which I am able to do this - Specifically relating to home mortgage.
For information on the firs-time home-buyer hardship distribution rules, please see the following:
