Cashing out solo 401k

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dp434
Posts: 13
Joined: Fri Mar 11, 2016 4:32 pm

Cashing out solo 401k

Post by dp434 »

I'm just wondering how difficult it is to do? Like is there a lot of red tape? What kind of taxes/fees do you have to pay?
123
Posts: 10387
Joined: Fri Oct 12, 2012 3:55 pm

Re: Cashing out solo 401k

Post by 123 »

I would think all of the conditions and procedures for the solo 401k would available from the plan administrator and could very significantly depending on the agreement. Contact your Solo 401k provider.
The closest helping hand is at the end of your own arm.
Spirit Rider
Posts: 13977
Joined: Fri Mar 02, 2007 1:39 pm

Re: Cashing out solo 401k

Post by Spirit Rider »

It depends on whether you wish to terminate the plan or not.

If you do not terminate the plan, what you can and can not do is dependent on your age and the one-participant 401k plan provisions. IRS regulations prohibit in-service distributions of employee deferrals prior to age 59 1/2. Also, prior to age 59 1/2, the plan may at its discretion allow the in-service distribution of prior rolled in assets, employer contributions (which are always 100% vested in a one-participant plans) and employee after-tax contributions and their earnings. You would need to contact the one-participant 401k plan provider to determine your in-service distribution options.

If you terminate the plan, you must distribute all the assets (generally within one year). After all the assets have been distributed, you must file a final form 5500 by the last day of the seventh (7th) month. This is true regardless if you have ever been required to file a yearly Form 5500, because your assets were > $250K. There are serious penalties for late filing / failure to file.

Whether you terminate the plan or not, the assets are distributed in the same manner as any other 401k assets at a current/former employer. That is they can be distributed subject to standard tax-ability issues of traditional 401k and Roth 401k accounts. The assets can also be rolled over to other eligible qualified plans or traditional IRA/Roth IRA accounts as appropriate,
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jimb_fromATL
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Joined: Sun Nov 10, 2013 11:00 am
Location: Atlanta area & Piedmont Triad NC and Interstate 85 in between.

Re: Cashing out solo 401k

Post by jimb_fromATL »

What exactly do you mean by "cashing out" ?
Are you thinking about spending the money, or paying debts, or investing it by rolling it into another retirement plan?
How much money are you talkin' about?
How old are you?

Poster Spirit Rider has mentioned a lot of details.

Here's some more stuff to think about:

Assuming you can "cash it out" and if you're not planning to roll it to another retirement plan, and also assuming it's all tax-deferred contributions, you'll pay regular income tax on all of the money taken out. If it's very much money at all, chances are it could push you into a higher tax bracket and cause you to may more tax than usual on it. And if you're under age 59.5, you'll pay a 10% penalty for early withdrawal on all of it too.

But the taxes and penalty may be only the tip of the iceberg. You'll also lose the compound interest that all of the money could have earned for the rest of your life. Depending on your age, that could be many times more than the tax and penalty.

My posts in the threads linked below give some examples of how surprisingly much it can sometimes cost to rob your future by taking out money from a retirement plan in the present.

viewtopic.php?f=1&t=212689&p=3266511

viewtopic.php?f=2&t=200835&p=3076006

viewtopic.php?f=2&t=146168&p=2179035

jimb
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