QUESTION: My wife and kids are the solo 401k beneficiary. If anything happen to me, will they be able to withdraw all of the money form the solo 401k right away or have to wait until a certain age?
ANSWER: Good question. Because under federal law the spouse is the primary beneficiary of the solo 401k by default, unless the spouse formally elects in writing to waive this right, the spouse has the following options:
- transfer the solo 401k funds to her own solo 401k if she is self-employed or another qualified plan;
- transfer the solo 401k funds to her own IRA;
- transfer the solo 401k funds to an inherited IRA (beneficiary IRA); or
- take a full distribution.
On the other hand, absent of a spouse (unmarried) and if the kids are the beneficiaries, then each solo 401k non-spouse beneficiary has the following options.
- transfer the solo 401k funds to beneficiary IRAs and then commence taking required distributions annually by December 31 following the solo 401k owner’s death; or
- take full distributions.
COMPLIANCE NOTE 1: Nonspouse beneficiaries may not rollover solo 401k plan assets to their own IRAs or to qualified plans such as 401k plans.
COMPLIANCE NOTE 2: Nonspouse beneficiary rollovers must be direct rollovers (i.e. the funds must be transferred directly to the new beneficiary IRA) and, therefore, the beneficiary cannot touch the funds or the assets while in transit from the solo 401k plan to the beneficiary IRA.
Lastly, for those that are looking to name their trust as the primary beneficiary of their solo 401k plan, CLICK HERE to learn about rules that apply when naming a trust as the beneficiary.