Following are the 2 (two) most common methods of moving a former employer plan such as a traditional 401k, 403b, TSP, Profit Sharing Plan, etc., to a self-directed solo 401k plan.
- A 60-day rollover
- A transfer
What is a 60-Day Rollover?
When funds from a former employer plan such as the ones referenced above including a traditional 401 k are processed as a 60-day rollover, the former employer plan administrator will report the movement of the funds as a taxable event to the IRS on Form 1099-R. The distributed funds are either wired to your personal bank account, or a check is mailed to you payable solely in your personal name which you then deposit into your personal bank account NOT the solo 401k plan. You then have 60 days from the date that you took constructive receipt of the distributed funds to rollover the fund to the solo 401k plan from your personal bank account.
What is a Transfer?
Under the transfer method, the participant directs his former employer to directly transfer the former employer 401k funds to his or her self-directed solo 401k sponsored by his self-employed business. In some cases, the employee may still be employed with the employer that sponsors the traditional 401k but is allowed to still transfer the 401k funds out because the employer is being acquired by another company through a asset or stock acquisition, going through a merger with another company or a change in employment status (e.g., nonunion to union).
When the traditional 401k funds are processed as a transfer, the former employer will generally only send the proceeds out by check in order to report the movement of the funds as a transfer on Form 1099-R using Code “G” in box 7. The check proceeds are payable in the name of the solo 401k for the benefit of the trustee, so as follows for example:
Example:
If the name of your solo 401k plan is Buckeyes Retirement Trust and your name is John Smith, then the transfer check is made payable as Buckeyes Retirement Trust, John Smith, Trustee
As the trustee of the solo 401k plan, you will then deposit the transfer check directly into the solo 401k bank or brokerage account NOT your personal or selfs-employed business bank account.
