Rollover to Solo 401(k)
Age 52 client wants to roll his large IRA to his newly established Solo-K with his business. He is retiring at age 55 (shortly after age 55) and shutting down the business. Can he keep his Solo 401(k) intact, and start taking distributions after his retirement without penalty? Or is the IRA transfer tracked seperatly and subject to the age 59 1/2 rule?
Permalink Submitted by Alan Spross on Sat, 2008-10-25 22:20
The IRA is not tracked separately in the QRP, and the entire amount is subject to the age 55 separation exception. The fact that these funds started in an IRA is erased from consideration. You can also get plan loans with this money if the plan allows them. Therefore, this can be an effective tactic to use.
Interestingly enough, this is NOT true for an IRA transfer to a 457b plan, which has no early withdrawal penalty. In that case, the IRA is accounted for as IRA source funds, and if withdrawn prior to age 59.5, the penalty applies per att’d copy from Sec 72:
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(9) Special rule for rollovers to section 457 plans
For purposes of this subsection, a distribution from an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A) shall be treated as a distribution from a qualified retirement plan described in 4974(c)(1) to the extent that such distribution is attributable to an amount transferred to an eligible deferred compensation plan from a qualified retirement plan (as defined in section 4974(c)).
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Permalink Submitted by Denise Appleby on Sun, 2008-10-26 01:28
Something to consider too ( though), is that if the business is closed, then the IK has to be terminated. Generally, you can only have a [url=http://www.retirementdictionary.com/Qualified-Retirement-Plan.htm%5DQRP%5B/u… you have an existing employer maintaining the QRP. If the business is terminated and the plan is not terminated, the plan may be considered an ‘orphan plan’.
Permalink Submitted by Al Fry on Sun, 2008-10-26 02:42
Thanks A & D! Good info.