Missed Solo 401k Required Minimum Distributions (RMDs)

Calculating and Processing RMD Responsibility

While is ultimately the solo 401k owner (trustee) responsibility to ensure the required minimum distribution is processed from the solo 401k plan by the applicable deadline since only the solo 401k has access to his or her solo 401k funds.  As a solo 401k provider, we will assist those clients that reach out to us to both calculate, and document the RMD by issuing a 1099-R for submission to the IRS by the solo 401k owner.

Solo 401k Plan Implications if the RMD is not Distributed

If the solo 401k plan owner/trustee does not take the RMD by the deadline, the solo 401k owner is subject to a 50 percent excess accumulation penalty on the amount of the solo 401k RMD that was not taken.  The solo 401k owner/participant must file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with Form 1040, U.S. Individual Income Tax Return, to pay the penalty. If the participant has a valid reason for not taking the RMD timely, he can include a letter explaining the circumstances and requesting a refund of the penalty.  If the IRS believes that the reason is valid, it will refund the penalty. For participants with larger account balances, and, therefore, larger RMD amounts, the penalty could be substantial.

When a solo 401k plan fails to distribute one or more RMDs for a year, the IRS could potentially disqualify the plan unless the solo 401k plan owner corrects the solo 401k RMD failure by following the steps outlined in the IRS’ Employer Plans Compliance Resolution System (EPCRS).

Visit FAQs to learn more about the Solo 401k RMD rules.

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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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