Solo 401k Distribution for Education Expenses

BACKGROUND: I am looking for a small-business 401K that allows withdrawals for higher education.  I have about $90K to rollover.

I have owned my own corporation for 10 years now and there are 2-3 full-time employees.   It is me and my partner (we are not legally married), we could make an argument for him working full-time or not.  The other person could also be arguably full-time or not, if we moved her from hourly and independent contractor rates for teaching to salaried.  We have other part-time employees and independent contractor/teachers.

RESPONSE: Unless you are planning to take a participant loan from the solo 401k, I do not recommend setting up a solo 401k if your intention is to take a distribution to pay for higher education expenses. Reason being, unlike an IRA which allows for early distributions if the proceeds are used to pay for education expenses and thus escape the 10% early distribution penalty, the same is not true for distributions made from a 401k including a solo 401k for paying education expenses. Instead, not only would the distribution need to fall under the hardship category, but the 10% early distribution also would apply to the solo 401k distribution amount.

Thanks,

Stephanie in Maryland

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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