Accountant · Austin, TX · Member since 2016 · 72 posts · 72 votes
I have a traditional IRA with SDIRA Services, and I want to rollover all of those funds into my Solo 401(k). The IRA company is giving me a hard time about it because they are expecting a 401(k) company to send them paperwork requesting the rollover, but in this case I'm the custodian/trustee so it's me that is sending them the paperwork. And so they feel like that doesn't seem like a proper rollover, so they want to report it as a distribution.
So what are my options? Is there a good way to convince them they have to let me rollover the funds into my Solo 401k? Or should I let them give me a check and call it a distribution, and then is it ok as long as I immediately deposit the funds into my Solo 401(k) bank account? But if I do that, I think I have to submit some kind of form to the IRS to document that?
if you get a distribution from them that means that they will send you a 1099-R in the beginning of next year reporting this as taxable income to you. You don't want to do that! If the funds were going to an IRA then custodian would file the form 5498 with the IRS reporting acceptance of a rollover (this process called 60-days rollover), but in the case of a 401k this form will not work. The form is called "IRA Contributions" and designed for IRAs only. There is no such form that you can file with the IRS for the 401k. You can have your CPA indicate on your tax return that those funds were deposited into another qualified plan, but the IRS most likely will question that. Couple of our clients, who didn't follow our instructions for Direct Rollover and took a distribution and then deposited those funds into 401k had to deal with the IRS... Trust me, this is not a pleasant experience. In my opinion you should avoid dealing with the IRS if at all possible, and taking a distribution from an IRA in order to deposit those funds into your Solo 401k is an invitation to the IRS to question you.
What you need to do is a Direct Rollover (from an IRA directly to 401k).
When we help our clients rollover funds from an IRA we provide them with the Direct Rollover form, it must be properly completed indicating that the funds are going directly into the 401k plan. You are not a custodian in the case of a 401k, but if you have truly self-directed Solo 401k plan your role is a Plan Administrator and you would be responsible for accepting the rollover into the plan. Again, there is a form to support that. This is very common, I'm surprised your Solo 401k provider did not offer you any help with this.
if you get a distribution from them that means that they will send you a 1099-R in the beginning of next year reporting this as taxable income to you. You don't want to do that! If the funds were going to an IRA then custodian would file the form 5498 with the IRS reporting acceptance of a rollover (this process called 60-days rollover), but in the case of a 401k this form will not work. The form is called "IRA Contributions" and designed for IRAs only. There is no such form that you can file with the IRS for the 401k. You can have your CPA indicate on your tax return that those funds were deposited into another qualified plan, but the IRS most likely will question that. Couple of our clients, who didn't follow our instructions for Direct Rollover and took a distribution and then deposited those funds into 401k had to deal with the IRS... Trust me, this is not a pleasant experience. In my opinion you should avoid dealing with the IRS if at all possible, and taking a distribution from an IRA in order to deposit those funds into your Solo 401k is an invitation to the IRS to question you.
What you need to do is a Direct Rollover (from an IRA directly to 401k).
When we help our clients rollover funds from an IRA we provide them with the Direct Rollover form, it must be properly completed indicating that the funds are going directly into the 401k plan. You are not a custodian in the case of a 401k, but if you have truly self-directed Solo 401k plan your role is a Plan Administrator and you would be responsible for accepting the rollover into the plan. Again, there is a form to support that. This is very common, I'm surprised your Solo 401k provider did not offer you any help with this.
Professional · Carlsbad, CA · Member since 2012 · 12k+ posts · 1k+ votes
9y
@David O.
I'm not surprised to hear that and you are correct that a transfer form signed by you requesting the direct rollover is all that is needed; however, companies like the one you mentioned including Equity Trust and many others that I will not mention are notorious for this, and the do it because they like to play games. It is a shame that they get away with it but I cant tell you that many have posted complains against these companies so they are not doing themselves any favors.
Accountant · Austin, TX · Member since 2016 · 72 posts · 72 votes
9y
Yeah. Justin sent me a generic rollover request form to use (thanks for that!). I sent it to them and the service rep I talked to is passing it along to her supervisor to take a look at it. I think it's at least possible they may do the rollover without a problem, but we'll see.
Professional · Bothell, WA · Member since 2016 · 89 posts · 17 votes
9y
@David Orr, some of my clients have been told their transfers will be reported as a distribution even though we are requesting a transfer from an admin into a traditional 401K. We then file paperwork to show that the funds were deposited into a plan account and that the 1099 is miscoded. Hassle, but can be done. Since this is coming from an IRA, if you have not already requested a 60 day rollover within the past year, perhaps try that.