Solo 401k RMD Questions and Answers

Last Updated on December 8, 2023

Q. Which table do I use to calculate my Solo 401k Plan RMD?

A: For lifetime distributions to Solo 401k Plan participant, you have two tables to choose from:

Uniform Lifetime Table–this table is usually used if the Solo 401k participant is not married; or

IRS Joint Life Table–used if the Solo 401k participant’s spouse is more than ten (10) years younger than him or her and is the sole beneficiary the entire year.

Q: I don’t have enough liquid cash in my Solo 401k | Self-Directed 401k to take my RMD because all of my Solo 401k funds are invested in real estate. What should I do?

A: The IRS still requires that you take you RMD. Therefore, you will need to re-register part of the real estate by deeding it to your personal name to satisfy RMD, and report it on form 1099-R. Alternatively, you have option to sell part of the real estate and then distribute the proceeds to satisfy the RMD.

Q: I’m over 72 years old but still self-employed. Do I still have to take required minimum distribution RMD from my Solo 401k | Self-Directed 401k?

A: If you reached age 72 in 2022, you are required to take your first RMD by April 1, 2023 if you did not already take it in 2022 and you will be required to take the 2023 RMD by December 31, 2023. The IRS requires the self-employed who have a Solo 401k to take RMDs.

Legislation, commonly known as the Secure Act, raises the age for required minimum distributions to 72 beginning in 2020. However, if you turned 70 1/2 in 2019, 2018 or prior years, you still have to continue taking RMDs even if you have not yet reached age 72.

NEW SECURE 2.0 ACT Passed on December 23, 2022

The SECURE 2.0 Act changed the age at which solo 401k owners are required to commence taking RMDs increased to 73 starting January 1, 2023. The prior age to start taking RMDs was 72, resulting in a 1 (one) year to delay taking a mandatory withdrawal of pretax solo 401k funds. Two important things to think about: If you turned 72 in 2022 or earlier, you will need to continue taking RMDs as scheduled. If you’re turning 72 in 2023 and have already scheduled your withdrawal, you may want to consider updating your withdrawal plan. Good to know: SECURE 2.0 also pushes the age at which RMDs must start to 75 starting in 2033.

5% Owners Rule Does not Apply to Self-Directed Solo 401k Plans

Confusion exists with respect to those who own less than 5% of the company not having to begin making distributions until April 1^st following the year you retire, but, again, this exception does not apply to the self-employed because you typically own more than 5% of the company.

More RMD Information

The required minimum distribution (RMD) regulations require a Solo 401k participant to begin distribution no later than his required beginning date (RBD) and to continue such distributions over a period not extending beyond the life expectancy of the participant and a designated beneficiary.

Prior to SECURE 2.0, a 50% penalty applied to missed solo 401k RMDs. Now the penalty is reduced to 25% and further reduced to 10% if the missed RMD is timely processed. This new rule is effective in 2023.

The RMD is typically calculated by dividing the account balance by the applicable distribution period. The account balance is generally the balance as of the last valuation date in the calendar year immediately preceding a year for which an RMD is due.

Calculating my Solo 401k RMD

For existing and prospective clients, we will calculate your RMD and prepare form 1099-R, the form used for reporting distributions including RMDs from Solo 401ks at no extra cost. Please e-mail us at [email protected] if you would like us to calculate your RMD. You may also use our online RMD calculator found here. For clients of My Solo 401k Financial, we will perform the Form 1099-R reporting, so make sure to complete the following Solo 401k RMD distribution form by 12/31 so that we can collect the necessary information for issuing the Form 1099-R. https://www.mysolo401k.net/solo-401k/required-minimum-distribution-rmd-solo-401k-distribution-form/

Contribute to Solo 401k While Taking RMDs QUESTION:

Even though I am required to take required minimum distributions from my solo 401k plan since I am over age 73, can I still make annual contributions to to the solo 401k plan?

Good question, and yes you can still contribute to the solo 401k plan and the contributions would be tax-deductible if made to the pretax solo 401k account. In other words, you can still make solo 401k contributions based on your net self-employment income even though you are also required to take RMDs. Also ,this contribution exception was not previously afforded to IRAs but is now thanks to the SECURE Act.

Delay Taking Solo 401k RMDs QUESTION:

If my wife and I wish to continue to work after 73 years of age, can we defer the RMD?

Good question, and no you cannot delay taking RMDs from solo 401k plans. Reason being, solo 401k plans are for owner-only businesses so RMDs cannot be delayed until you stop working like you can when you work for a full-time employer that sponsors/offers the the 401k plan where you are not a 5% owner. This rule is addressed in the following IRS page: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds

Take my Solo 401k RMD From My IRA QUESTION:

I have IRA accounts which are also subject to RMD. I am looking to sum all retirement accounts (Solo401K, Traditional and SEP IRA’s) to get the total RMD amount, taking that total RMD amount from one IRA account. I believe this to be kosher, particularly as it seems the filing dates are the same for each of the account types?

Unlike IRAs where the participant can distribute the total amount from one or more of his or her IRAs, the 401k rules including the solo 401k rules require the RMD separately distributed from the 401k; therefore, the solo 401k RMD must be taken from the solo 401k. What is more, if you have multiple 401k plans (e.g., a day-time employer 401k and a self-employed solo 401k), the IRS RMD rules also require separate distributions from each 401k plan.