QUESTION: I have an existing solo 401k that I would like to use to start a business. I’ve read a lot of information on-line stating that you can use an IRA and/or former employer 401k to finance a new business but haven’t been able to nail down whether an existing solo 401k can be rolled over to a new 401k for funding a new business. Can you please provide information on this?
ANSWER: Yes just like other 401k plan types as well as IRAs, an existing solo 401k plan may be rolled over to a new 401k to finance a start-up business; however only certain funds may be directly rolled over, which include the following.
Funds previously rolled over. Generally only funds previously rolled over into a solo 401k plan may be transferred/ directly rolled over to another 401k for use in the 401k small business financing arrangement.
After-tax contributions. Funds contributed to a solo 401k plan on an after tax bases, with the exception of Roth Solo 401k funds, which may not be used in the 401k business financing arrangement, qualify to be transferred or directly rolled over to a ROBS 401k.
Certain employer contributions. Employer or profit sharing contributions, but only after meeting the following conditions: (1) the attainment of age 59 ½; (2) having been accumulated in the plan for at least 2 years; or (3) having participated in the Solo 401k plan for minimum of 5 years.
Certain employee contributions. After reaching age 59 ½ the solo 401k participant may directly rollover his or her employee contributions to a 401k for use in the 401k small business financing solution.
Closing words: You will need to review the solo 401k plan documents adopted through your solo 401k provider to ultimately determine what funds the existing solo 401k plan will be able to be directly rolled over to another 401k while still employed through the business that sponsored/adopted the solo 401k. Lastly, all solo 401k funds, with the exception of Roth solo 401k funds, may be directly rolled over to the 401k small business financing arrangement once the self-employed business that sponsored the solo 401k is either closed or the solo 401k plan is formally terminated (i.e., a final Form 5500 EZ return has been filed).