Transfer Self-Directed Solo 401k to a Self-Directed IRA

Once the owner-only business owners ceases self-employment activity, resulting in having to close down the solo 401k plan, an option is to transfer the plan to a self-directed IRA.

Following are the  ultimate steps that apply when closing a solo 401k plan by transferring/rolling it over to a self-directed IRA.  By transferring the solo 401k plan to a a self-directed IRA, you can continue investing in alternative investments such as real estate, notes and metals, to name a few.

First: Open a Self-Directed IRA

If you don’t already have a self-directed IRA, open one with  a self-directed IRA custodian such as Forge Trust Company. The IRA can generally be opened on-line.

Second: Determine if Just Cash or Assets Will Be Transferred

If the solo 401k plan also holds alternative investments such as real estate and notes, they can be transferred in-kind to the self-directed IRA with the help of the new IRA custodian.

Third: Complete the On-Line Full Transfer/Rollover Form

The self-directed solo 401k provider will need to issue a Form 1099-R to report the non-taxable transfer of the solo 401k and its assets to the self-directed IRA. For My Solo 401k Financial clients, the following form is used: https://www.mysolo401k.net/solo-401k/full-transfer-of-pretax-solo-401k-to-pretax-ira/

REPORTING THE FULL SOLO 401K DIRECT ROLLOVER TO A TRADITIONAL IRA

Form 1099R

The solo 401k provider will report the direct rollover from the solo 401k to the IRA on Form 1099-R. A 1099-R is a required document that must be completed and sent to the IRS for all distributions, including non-taxable direct rollovers to a TRADITIONAL IRA from a Solo 401k plan. The 1099-R will be issued in February of the year following the transfer, with a copy sent to you for filing with your taxes and a copy sent to the IRS. IMPORTANT: The direct rollover is not taxable only re-portable IF the funds are transferred to a TRADITIONAL IRA.

Form 5500ez

By February of the year following the transfer to the IRA, the solo 401k provider will issue a final Form 5500ez to formally report the closure of the solo 401k plan to the IRS.

Moving the funds from the Solo 401k to the Self-Directed IRA

If by Check:

  • Make the FULL transfer check from the PRETAX solo 401k account payable in the name of the new IRA custodian F.B.O. your name.
  • List the IRA account number and write “Full Solo 401k Direct Rollover to Pretax IRA” on the memo section of the check.

If Electronically:

  • You may also have the bank or brokerage form holding the solo 401k funds move the funds electronically such as by wire to your Pretax IRA.

If an alternative investment such as real estate is being transferred from the solo 401k (in-kind transfer) to your pretax IRA, make sure to first get the property valued /appraised to ensure the correct amount transfer amount is reported on Form 1099-R to the IRS, and you will need to have the property assigned/deeded from the solo 401k to the IRA. If real estate, You will need to contact the county recorder to have this done.

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 >>

Post a Comment

Your email is never published nor shared. Required fields are marked *

You may use these HTML tags and attributes <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

*
*

MENU