Here are some quick items to consider when taking distributions from a solo 401k plan including in-kind distributions of real estate owned under the solo 401kplan.
- Distributions including in-kind distributions of real estate from a solo 401k plan are taxed at earned income tax rates.
- Any taxable in-kind distribution distributed to you is subject to mandatory withholding of 20% of federal taxes, even if you intend to roll the distribution over later to an IRA or back to the solo 401k plan.
- A 10% early distribution penalty also applies if you are under age 59 1/2.
- A triggering event (this is an IRS rule) must be satisfied in order to make a solo 401k distribution. A triggering event is the attainment of age 59 1/2, for example.
- If you are over age 59 1/2, you can distribute any amounts.
- If you are not over age 59 1/2, you can generally only distribute any amounts that were transferred/rolled over to the solo 401k from other retirement plans and/or IRAs.
- In the case of an in-kind distribution of solo 401k real estate, the property will first need to be appraised by a third-party (not the solo 401kparticipant/trustee) to ensure the correct tax amount is paid.
- Whether a partial or full distribution of the real estate property, the property will need be assigned from the solo 401k to your personal name, so you will also need to have the property re-recorded with the county recorder.
- If a full in-kind distribution, the full property is assigned from the solo 401k to your name.
- If a partial in-kind distribution of real estate, that portion is assigned from the solo 401k in your name so the solo 401k will still remain a partial owner. As a result, you still cannot use the property for personal use since the solo 401k plan still owns part of the property.
- In the event the property is now owned by your and your solo 401k plan, all income and expenses will need to be allocated based on the ownership percentages.
