Self-Directed Solo 401k Roth Solo 401k Recharacterization Question

QUESTION:

I am thinking about doing an in plan Roth 401k conversion of the remaining funds in the pre-tax part of my solo 401k plan (around $300K). I am with my tax advisor now and we are questioning if this could be recharacterized (undone) later in 2019 when my tax situation becomes clearer.

ANSWER:

That is a great question and the short answer is no. 401k funds including solo 401k funds that have been converted to a Roth 401k status (known as an in-plan conversion) cannot be recharacterized to pretax 401k funds once converted. If you wish to proceed with the in-plan Roth solo 401k conversion, your solo 401k provider will need to document and report the in-plan Roth solo 401k conversion to the IRS using Form 1099-R.

More Roth Solo 401k in-plan conversion tips

Tip 1: Roth 401k conversions are reported on form 1099R using code “G” not codes 2 or 7 which are the codes used to report Roth IRA conversions.

Tip 2: When converting pretax solo 401k assets such as physical real-estate to a Roth solo 401k, the property must be appraised by a third-party valuation provider to ensure the correct value being converted is reported on form 1099-R.

Tip 3: Once converted the Roth Solo 401k funds can later be transferred to a Roth IRA which is a good planning option because Roth solo 401k plans are subject to required minimum distributions (RMDs), but Roth IRAs are not.

Tip 4: The Roth Solo 401k conversion rules allow for the conversion of after-tax funds provided the solo 401k provider’s plan documents allow for it.

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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