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How to Rollover an Employer 401k to the Solo 401k

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Have funds at a current or previous employer 401k? Learn how you can rollover those funds to your Solo 401k and get them into your control. If you are an independent thinker, the Solo 401k is probably the best retirement account for you. It’s definitely the best retirement plan for the self-employed and freelancers. Saving for retirement doesn’t involve a one-size-fits-all plan. Since every situation is unique, it’s important to look for the retirement account that best lines up with your job situation and future goals. The Solo 401k offers the most flexibility and highest contributions allowed under the tax laws. That makes it the right choice for the person wanting full control of their future and especially control of their retirement future.

There are several ways to open and/or fund your Solo 401k.  A rollover from an employer 401k is among the fastest and easiest. When you rollover funds from a current or previous employer to your Solo 401k, it’s important that it be done correctly to avoid taxes and penalties. If the rollover is done wrong, you can trigger an accidental distribution (which means you’ll get a tax bill). To assure all of the forms are filled out correctly, we provide an easy-to-use rollover request generator that creates a customized rollover to transfer funds from another existing account into your Solo 401k.

Why to Rollover an Employer 401k to a Solo 401k

Consolidating assets from multiple retirement accounts into a single account is one of the most prominent benefits that you’ll benefit from. Another major benefit of consolidation is simplifying your ability to take a loan out from your Solo 401k. Loans are allowed up to $50,000 or 50% of your account value. Rolling over other retirement accounts into a Solo 401k can increase the available loan amount, make it easier to manage, and allow you to take a bigger loan amount.

Because you gain full control of your investments, pooling your money into the same account enables larger investments in assets like real estate and private placements. Another benefit is eliminating administrative and other fees on multiple accounts while receiving exceptional services with your Solo 401k. Also, consider your time savings by no longer needing to manage multiple accounts.

Benefits to Funding Your Solo 401k from an Employer 401k Rollover

If you’re considering other alternative retirement plans (such as an IRA), the contribution limits available through a Solo 401k cannot be beat. Contribution limits go up annually. For 2021, the IRS Defined Contribution Limit is $58,000 (up from $57,000 in 2020). If you are still contributing to an employer 401k, it likely limits your allowable contribution and ability to defer taxes. Your Solo 401k allows more than twice the contributions available from other plans. When your spouse also participates in a Solo 401k, the potential contribution limit doubles to $129,000! And… the ‘over age 50’ catch-up provision is the most generous of all IRS retirement plans. It allows an extra $6,500 in tax-free deposits compared to $1,000 or $3,000 for traditional IRAs or SIMPLE IRAs.

More benefits when you rollover an employer 401k to a Solo 401k:

  • Annual funding is flexible. Once established, you can fund it to the max each year or anywhere between zero and the max. There is no minimum funding requirement.
  • Immediate access to your assets with full decision-making authority.
  • Stop paying transaction and asset-based fees to a financial advisor who may limit your investment options.
  • Have all profits from your investments build your retirement account tax-free.
  • More diversification in your retirement account. and Our Easy Rollover Process

Our proprietary software helps you complete and generate a rollover packet to send to your current custodian in two minutes or less. Your rollover packet includes all the relevant compliance paperwork proving your Solo 401k is an IRS-approved plan, including a copy of our IRS Opinion Letter, and a sample 1099-R so your custodian can document the rollover as a direct rollover.

The simple six steps are:

  1. Log into your Solo 401k dashboard.
  2. Click on “Rollovers” in the top menu.
  3. Watch the demo video showing you exactly how to complete the rollover form.
  4. Submit your information.
  5. Download, print, and sign your rollover packet.
  6. Send the rollover packet to the releasing custodian.

Rollover Best Practices

Always call and make sure you are sending the rollover request in the correct format… some custodians prefer you fax the request. Others require you to mail it. Some will allow you to email it.

Rollovers generally include moving money from an employer sponsored plan, such as a 401k, 403b, 457 plan, Thrift Savings Plan (TSP), pension plan, etc. to an IRA or a Solo 401k. Here is the IRS Chart showing exactly which accounts can be rolled over to any 401k (see the “Qualified Plan” column on the chart).

IRS rules do not permit a Roth IRA to be rolled over into Solo 401k; however, you can rollover a Roth 401k into the Solo Roth 401k.

You have the option to rollover all or part of the funds from the other account. You also can roll over multiple old “orphan” retirement plans (e.g. SEP-IRA, SIMPLE IRA, Traditional IRA, etc.) into your Solo 401k. Any of these funds can be rolled over in full or partially to your Solo 401k. You maintain the same tax-deferred status within the Solo 401k.

Types of Available Rollovers and Transfers

You have to be eligible for a Solo 401k…. the simple requirement is being self-employed (part-time counts) without full-time employees (partners and spouses are exceptions). If you don’t already have a Solo 401k account, follow the setup process.

We strongly recommend using our rollover request generator but there are two types of rollovers you can use to fund your Solo 401k plan, a direct rollover (the rollover request generator) or an indirect rollover. These two types of rollovers have very different tax implications, so proceed with caution!

Direct rollover: your funds are moved directly from one retirement plan to another. There is no taxable withholding and you don’t have to pay any taxes or early withdrawal penalties for moving the money from one retirement plan to the next.

Indirect rollover: also known as a 60-day rollover, this occurs when your funds indirectly make their way into your Solo 401k by going through you first. Generally, your custodian or plan administrator will send a check with your retirement funds made payable to you personally. You then have 60-days to deposit those funds into your Solo 401k. If your funds are not deposited within 60-days, the funds may be considered a taxable distributed (and have early withdrawal penalties if applicable).

Employer Rollover to Solo 401k FAQs

Can I have a Solo 401k and my corporate (regular) job at the same time? Yes.

Can I contribute to both the Solo 401k and employer 401k plan at the same time? Yes! The Solo 401k has two types of contributions: employee (salary deferral) contributions and employer (profit-sharing) contributions. Your 2021 employee contributions are limited to $19,500 across all 401k plans (or $26,000 if you are age 50 or older). That means if you are contributing $10,000 to your 401k at work, you would be able to contribute the remaining $9,500 to your Solo 401k plan. Employer (profit-sharing) contributions stand alone so the amount you contribute to the employer portion of your Solo 401k plan does not affect your regular job 401k because they are two distinct employers/businesses.

Can I rollover funds from an employer that I still work for? Maybe, it depends on your employer’s policy. It can make sense to rollover your employer 401k while you continue to work and make further contributions to your company plan. Rolling over to a Solo 401k brings the flexibility and control to diversify your investments as you see fit. But do some checking to see if you’re employer’s policy allows this. Not every 401k plan allows you to rollover into a Solo 401k while you are still working for that employer.

The Solo 401k is the most tax-advantageous plan available as well as having high annual contribution limits. Along with all of the other benefits, the Solo 401k also enables you to borrow money from your retirement funds to help finance your business – something prohibited with IRA plans.

One Response

  1. Hello! I did an indirect rollover in 2020 when I left an employer to my solo-401k. I have proof of the deposit within 60 days to my solo-401k account but the IRS is not accepting it – they say I must have a 1099-R. Can you advise on what to do (lawyer? accountant?). Thanks in advance.

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