Solo 401k Plan Rollover: How to Fund Your Solo 401k?

Solo 401k Plan for Small Business

Solo 401k plan has gained popularity over the past couple of years, especially with the increasing number of self-employed individuals in the U.S. If you are a small business owner or just starting out with self-employment, it offers you an option to rollover your existing retirement funds. For those of you planning to spend your existing account balance on the business, it might not be a smart move. Early withdrawals are likely to cost additional 10% penalties along with other tax burdens on the withdrawer. In this post, we will answer some eligibility questions and rollover options that you can practice.

Solo 401k Plan Eligibility: Can you open a Solo 401k account?

The IRS has setup some criteria for opening Solo 401k account and under its existing guidelines, sole proprietors, self-employed individuals, small business owners, partnerships, LLCs, C Corporations, and S corporations can open this account. In fact, if you are still working with your previous employer, while having a side business, you are eligible to setup a Solo 401k plan. Under the current contribution limits, you can contribute up to $53,000 annually along with catch-up contributions of $6,000 for individuals above 50 years. There are no minimum contribution limits for this retirement plan, offering flexibility to young business owners.

On the contrary, small business owners with salaried W-2 employees of age above 21 years, who work 1,000 hours or more in a calendar year, are not eligible for Solo 401k retirement account. However, if you employ independent contractors working more than 1,000 hours in a calendar year, you are eligible for this plan. There are some more regulations that you must know before applying for an account.

What are the eligible rollover retirement accounts for Solo 401k?

Generally, the IRS allows rollovers from any pre-tax retirement accounts, helping you consolidate your retirement savings. The current guidelines allow you to rollover funds from 401k, 403b, 457 and thrift saving plans. In addition to these employer accounts, traditional IRA, Simple IRA, SEP IRA, Defined Benefit Plan, and Keogh plans can be rolled over into a Solo 401k plan. The IRS do not allow rollover of a Roth IRA account into an Individual Roth  401k plan, posing some restrictions for post-tax contributions.

Some popular rollover methods include:

• Transfer in-kind
• Cash Transfer
• 60-Day Cash Rollover

Consolidating retirement accounts into one single Solo 401k retirement plan allows you to benefit from loan feature and offers easy maintenance of your retirement savings. Under the loan feature, you can borrow up to 50% of your account balance to a maximum limit of $50,000. Solo 401k loan is available with lower interest margins i.e. prime rate plus one percent.