Anyone experienced with Rollover from an IRA to a Solo K
Hello fellow professionals,
I just learned that moving money from an IRA to a Solo K is considered a Rollover called reverse rollover.
As client’s looking to transfer money from an IRA to a Solo K, I’m having some issues with the receiving and delivering custodians’ requirements.
Delivering firm states they’d need a rollover form and a letter of acceptance from the receiving end.
Receiving firm keeps saying that a distribution form from the delivering firm is needed.
Your help is greatly appreciated.
Thank you!
Permalink Submitted by Alan - IRA critic on Mon, 2021-02-01 23:27
Sounds like the meeting of reluctant custodians. The main concern of the solo K custodian should be that there is no IRA basis included in the rollover since qualified plans cannot accept IRA basis. The IRS issued RR 2014-9 to facilitate these rollovers stating that a certification by the taxpayer that the IRA rollover does not contain IRA basis is sufficient for the plan to allow the rollover, however if the plan later finds that the certification was in error they must distribute the excess amount plus earnings.
The IRA custodian might be concerned with the fallout if they issue a direct rollover check and due to miscommunication between the plan and the taxpayer, the plan will not accept the rollover. What happens then if the taxpayer has used up the one allowed rollover in 12 months? A rollback to the plan should not be accepted by the plan, leading to a massive tax bill for the taxpayer since these rollovers are typically the entire pre tax IRA balance.
Therefore, some custodians are more inclined to mitigate all of these risks than others. I think that the client has paired up two of those here. With some communication, client should be able to fight through this hassle, but the rollover will take longer than usual.