Transferring Old IRA funds to New Solo 401K ?

Question

If I set up a Solo 401K now, can I transfer IRA assets from an old IRA I established 2 years ago into the new 401K? I'm referring to an old IRA that holds stock mutual fund (say a Janus Fund). Or is the Solo 401K only to be funded from money I earn from self employment after the 401K is established ? Any replies would be appreciated!

Dmitriy Fomichenko · Answer

Tricia, yes you can, here is a rollover chart from IRS showing which accounts can be rolled over into 401k:https://www.irs.gov/pub/irs-tege/rollover_chart.pd...Basically you can rollover any account with the exception of Roth IRA.

Brian Eastman · Answer

@Tricia O'BrienYour 2nd assumption in your recent post is correct. If you wanted to have personal use of an asset held by your plan, you would need to have the property formally appraised and you could then distribute the asset to yourself from the plan. This would involve issuing a quit-claim deed from the plan to your name for the title of the property and appropriate plan reporting via a form 1099-R of the value of the property as a taxable distribution.My point above is that there is generally no tangible benefit to doing this. If you buy the property today for $100K and it is worth $110K a few years from now when you distribute, you will pay taxes on the $110K amount. Why go through the effort and expense of setting up a self-directed plan where there is no tax-sheltering benefit as a result?The better use of the plan would be to put it into an investment that produces consistent income over time, so that you can tap into that income in the future once you are retired.

Justin Windham · Answer

@Tricia O'BrienIf you decide to retire and want to occupy the property owned by your Solo 401k, you could distribute the home to yourself, as mentioned. Yes, you would owe taxes on the value of that distribution as income.

Tricia O'Brien · Answer

Dmitriy, If the Solo 401K owns the rental property (and it's not a Roth 401K) and then I retire when I am 59 1/2 or older, can I owner occupy the property without any penalty from the IRS? Would I basically owe the IRS the taxes on the house as a distribution? So, for example, if the house is worth $100K fair market value at the time I retire (say at age 61) then I would pay taxes on the $100K as income?

Dmitriy Fomichenko · Answer

Tricia, you can buy a rental property in your 401k, but you can not buy a home that you use a residence. The rules do not allow you to gain any personal benefits from investments/assets of your 401k. As long as the 401k owns the property you can never use it as residence, unless you do in-kind distribution. It might make sense after you retire and if you hold the property in your Roth 401k, in this case there will be no tax consequences.

Brian Eastman · Answer

@Tricia O'BrienIn both an IRA and a Solo 401k, what you seek is not really feasible. You cannot buy a property from your retirement plan. You could choose to take the property out of the plan as a taxable distribution in-kind, but the tax hit of doing so will be huge, and there would be no benefit to using the IRA or 401k in this manner.

Tricia O'Brien · Answer

I am considering creating a Solo 401K to buy a home which I would turn into a rental property. If I do that, can I later use that home as my personal residence? Would I have to keep it as a rental for 1-2 years before I could have it as a personal residence under the Solo 401K rules? Would the same or different rules apply for a self directed IRA (regarding using it as a rental and then converting it to owner occupied)?

Mark Nolan · Answer

@Tricia O'BrienGood question. Yes traditional IRAs can be transferred to a solo 401k at anytime. However, if you have a SIMPLE IRA--a type of IRA for the self-employed, you generally have to wait two years before it can be transferred to a solo 401k plan. The following types of accounts can be transferred to a solo 401k plan. Traditional IRAsSEP IRAsRollover or Conduit IRAsSIMPLE IRAsSIMPLE 401(k) Plans401(k) PlansProfit Sharing PlansMoney Purchase Pension PlansDefined Benefit PlansGovernment 457(b) Plans403(b) PlansHowever a Roth IRA can never be transferred to a 401k plan including a solo 401k plan. This is a Roth IRA restriction because the distribution rules are different for a Roth IRA vs a Roth Solo 401k. Roth IRA distributions are subject to ordering rules whereas Roth 401k distributions are not (i.e., distributions from a Roth solo 401k consist of basis and earnings).