do you have to close/rollover Solo 401k?

[jsmoove123]

Doing some moonlighting with 1099 income while in training. There will probably be a year at some point where I make no self-employment income.

In what circumstances would I have to close/rollover my Solo 401k? Can I just leave it in place, not making contributions, and simply distribute when the time comes?

 

Thanks!

[childay]

You leave it in place no requirement to close it.  Assuming you opened it in the right place you could then roll other IRAs or 401ks into it..

[spiritrider]

A key point is that a solo 401k is sponsored by an employer. If that employer ceases to exist the solo 401k must be terminated, generally within about one year and a final IRS Form 5500-EZ filed.

If you created an LLC and/or S-Corp, when you dissolve those, the solo 401k plan must be terminated.

If you just operated a sole proprietor there is generally no hard and fast rule on when a sole proprietor ceases to exist. If you keep the trappings of a business (name, bank accounts, etc...) and would be still looking for moonlighting opportunities, there is no reason for the sole proprietorship to cease. White coats very often find that moonlighting opportunities appear when they least expect them.

 

[DMFA]

spiritrider wrote:

A key point is that a solo 401k is sponsored by an employer. If that employer ceases to exist the solo 401k must be terminated, generally within about one year and a final IRS Form 5500-EZ filed.

If you created an LLC and/or S-Corp, when you dissolve those, the solo 401k plan must be terminated.

If you just operated a sole proprietor there is generally no hard and fast rule on when a sole proprietor ceases to exist. If you keep the trappings of a business (name, bank accounts, etc…) and would be still looking for moonlighting opportunities, there is no reason for the sole proprietorship to cease. White coats very often find that moonlighting opportunities appear when they least expect them.

 

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Now there's a difference in terminating the plan and actually closing the account, right?

[spiritrider]

I'm not sure what you are asking. When terminating a plan, the individual assets are transferred or withdrawn/rolled over to accounts at other plans. Then you have until the last day of the seventh month after the accounts have zero balances to file the final Form 5500-EZ. Individual balances can not exist in 401k accounts outside of a plan.

[Antares]

I think the question is whether you need to transfer the assets in the solo 401K into another IRA-like vehicle after stopping the work activity from which earnings contributions were being made, or whether you can maintain the account intact and take withdrawals from it in the future as desired.

[childay]

Yes if you are moonlighting as a sole proprietor and do not make any money in a particular year, you can still keep the plan open.  The "business" is still open but you have no profits.

[Antares]

But once, for example, you retire you must do what with the monies in the solo 401K?

[jfoxcpacfp]

Antares wrote:

If you keep the trappings of a business (name, bank accounts, etc…) and would be still looking for moonlighting opportunities, there is no reason for the sole proprietorship to cease.

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As @spiritrider suggested,

spiritrider wrote:

If you keep the trappings of a business (name, bank accounts, etc…) and would be still looking for moonlighting opportunities, there is no reason for the sole proprietorship to cease.

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Yes, it's a bit more trouble, but who knows when you might decide to take a side gig? Until then, your business is, shall we say, temporarily comatose. Otherwise, you'll have to r/o plan assets. If this is not an appealing option and retirement is approaching, roll your SOLO-k into your work 401k/403b and keep it parked there until you begin taking RMDs at 70.5.

[jsmoove]

My feeling is that I'd prefer to keep it open, even if I can't contribute certain years. This would give me flexibility, e.g. to roll over a 401k/457 in the s401k rather than into a tIRA, to preserve the backdoor Roth option.

 

I just want to make sure that no rule is forcing me out of the s401k. Sounds like the case of personal moonlighting doesn't have anything requiring closure of the s401k.

[Antares]

jfoxcpacfp wrote:

Antares wrote:

If you keep the trappings of a business (name, bank accounts, etc…) and would be still looking for moonlighting opportunities, there is no reason for the sole proprietorship to cease. 

Click to expand…

As @spiritrider suggested,

spiritrider wrote:

If you keep the trappings of a business (name, bank accounts, etc…) and would be still looking for moonlighting opportunities, there is no reason for the sole proprietorship to cease. 

Click to expand…

Yes, it’s a bit more trouble, but who knows when you might decide to take a side gig? Until then, your business is, shall we say, temporarily comatose. Otherwise, you’ll have to r/o plan assets. If this is not an appealing option and retirement is approaching, roll your SOLO-k into your work 401k/403b and keep it parked there until you begin taking RMDs at 70.5.

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Sorry if is this beating a dead horse, but if you are in solo practice with no work 401k/403b, and retired taking rmds, can you just leave it permanently as a solo 401k that you are no longer contributing to, and if not, what are the options?

[jfoxcpacfp]

Antares wrote:

Sorry if is this beating a dead horse, but if you are in solo practice with no work 401k/403b, and retired taking rmds, can you just leave it permanently as a solo 401k that you are no longer contributing to, and if not, what are the options?

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It is my understanding that, if the business is closed, the 401k can no longer exist - it must be rolled over to an IRA, cashed out, or rolled into another plan along with the filing of a final 5500-EZ. At least, that is the opinion of the writer of this article, but we're all giving free advice, so take it for what it's worth. Individuals cannot own 401k's except under the umbrella of a business that "sponsors" the plan. It's easy to get this confused since you are both business owner and "employee" and there have been varied opinions on this topic on the forum. Hopefully, @spiritrider can give you book, chapter, and verse.

[Antares]

Thanks, Johanna. I must look into it further, as this will likely be my situation in a few years.

[litovskyassetmanagement]

spiritrider wrote:

A key point is that a solo 401k is sponsored by an employer. If that employer ceases to exist the solo 401k must be terminated, generally within about one year and a final IRS Form 5500-EZ filed.

If you created an LLC and/or S-Corp, when you dissolve those, the solo 401k plan must be terminated.

If you just operated a sole proprietor there is generally no hard and fast rule on when a sole proprietor ceases to exist. If you keep the trappings of a business (name, bank accounts, etc…) and would be still looking for moonlighting opportunities, there is no reason for the sole proprietorship to cease. White coats very often find that moonlighting opportunities appear when they least expect them.

 

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You might also be able to switch entities and have the 'solo proprietor' or another entity adopt your earlier plan via a simple amendment, so you don't have to close your plan just because the entity closed, as long as you do some 1099 work.  The idea is to continue operating under the entity as a 1099 contractor and this would allow one to continue using a solo 401k.  This is the best asset protection approach vs. rolling into an IRA.  This is a grey area and I would recommend talking with an attorney regarding this.

[spiritrider]

Antares wrote:

Sorry if is this beating a dead horse, but if you are in solo practice with no work 401k/403b, and retired taking rmds, can you just leave it permanently as a solo 401k that you are no longer contributing to, and if not, what are the options?

Click to expand...

Under 401(c)(1)(B), you are still considered a self-employed individual if you had earned income in any prior tax year, but did not have net business profits in the intervening years.

There have been discussions of this issue over the years on benefitslink.com forums. This is a professionals forum and the marginal consensus was that retiring and taking distributions including RMDs would be permitted distributions.

However, to my knowledge, the IRS has not issued guidance on this issue. This may sound like a broken record, but you should obtain professional advice before engaging in such an obvious tenuous gray area.