Individual K rollover
A prospective client opened an Individual K through Ascensus in 2023. She has since realized that the fees on the small contribution will more than wipe out any potential growth in the account. She would like to roll the funds into a Traditional IRA. She is under 59 1/2. Can she roll the funds to a Trad. IRA if she still owns and works for the business?
Permalink Submitted by Alan - IRA critic on Mon, 2024-10-07 16:46
Yes, but she must properly terminate the plan. To terminate a Solo 401k plan (assuming it is in good standing and the plan document is up-to-date):
1. Write a brief memo for your files saying you are terminating the plan as of [effective date].
2. Transfer out all plan assets. Tell the provider you have terminated the plan. The provider must issue a 1099R coded G for the direct rollover.
3. Complete a final Form 5500-EZ by the end of the 7th month following the plan termination. Use the EFAST2 system to file as you receive proof-of-filing and the system does some filing edit checks before submission. Use the current year’s form available on the system, there are spaces to input the beginning and end (date plan assets were zero) of the plan year. For example, for a plan terminated in 2024, you can use the 2023 form up until the 2024 form is released on 1/1/25. Be sure to check the box for ‘final return’. Also be sure the end of year # of participants and plan assets are zero.
4. Do not be late with the 5500 EZ. Penalties are severe.
Permalink Submitted by Jason Frank on Tue, 2024-10-08 10:22
Thank you for the detailed and extremely helpful answer!