Solo 401k Beneficiary Questions

While generally a solo 401k plan participant’s spouse is deemed by law to be the participant’s solo 401k beneficiary unless he or she gives up her beneficiary rights, a beneficiary designation form should be completed when the self-employed individual establishes a solo 401k plan.

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.

Video SLIDES: How To Designate a Beneficiary for Your Solo 401k Plan

Daughter Beneficiary QUESTION:

I am doing some estate planning and am writing up a instruction
for my daughter on how to inherit my solo 401K plan after I pass away.
I want to know if there is “stretch” withdrawal option for a inherited
Solo 401K plan. (i.e. Don’t do a lump sum withdrawal, spread the
withdrawal over her lifetime. ).

My plan is to tell her to transfer the Solo 401K account to IRA Services Trust company’s inherited IRA account. This way she would not need to file the yearly From 5500ez, and the “stretch” withdrawal option should be available under the IRA rule. If the above assumption is incorrect, can you fill me in on the correct way to achieve my goal?

You are correct that the stretch option is not available for a solo 401k like it is for an IRA.

Therefore, the solo 401k would be transferred to the her beneficiary IRA and she would then take distributions from the beneficiary IRA based on her life-expectancy.

Lastly, make sure your beneficiary form is updated to list your daughter as the primary beneficiary.

rust as Beneficiary QUESTION: Can I make the Primary Beneficiary MY Revocable Trust so that this money can continue to be part of my overall estate?

Good question and yes you can name your revocable trust as the primary beneficiary of the solo 401k plan. Upon your death, the solo 401k plan funds would flow to the named beneficiaries under the revocable living trust.

Transfer Inherited 401k from My Mother to my Solo 401k:

I just inherited two separate 401(k) accounts from my mother who passed away at 78. Can these be rolled into my solo 401k?

Unfortunately, the IRS rules do not allow for the transfer of 401k or IRA funds inherited from a non-spouse to your solo 401k or even your own IRA. Instead, you would need to transfer the non-spouse inherited funds to your own “beneficiary IRA”. See the following for more information:

Death of Spouse: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-death-of-spouse

Beneficiary: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary