9 Things to Know About Solo 401(k) Beneficiaries
When you operate a self-directed Solo 401(k) plan, being mindful of the beneficiaries who will inherit your plan is important.
Choosing who to name as beneficiaries for your plan and how to make your designations can be simple or complex, depending on your situation and goals.
Beneficiary rules changed with the SECURE Act effective January 1, 2020. If you have not reviewed your plan beneficiaries in some time, it would be prudent to revisit the topic.
It is always a good idea to speak with your licensed estate planning counsel about 401(k) beneficiary designations. Following are some tips to help guide that conversation.
How are Beneficiaries Designated?
When you implement your Solo 401(k) plan, it is important to name at least one primary beneficiary. The plan documents include a beneficiary designation form for this purpose.
You can add or change beneficiary designations at any time simply by completing a new beneficiary designation form.
It is a good idea to keep a copy of the 401(k) beneficiary designation with your other estate planning documents.
Primary and Contingent Beneficiaries
You can name both primary and contingent beneficiaries. A primary beneficiary will inherit their allocated share of the 401(k) at your passing. If no primary beneficiary is available, then the contingent beneficiary or beneficiaries will receive plan benefits.
When you assign beneficiaries, you must allocate 100% primary beneficial interest. You can designate one or more beneficiaries as primary, so long as the allocation adds up to 100%.
Naming contingent beneficiaries is optional. Just like with the primary designation you must allocate 100% of the account value across the named parties in the contingent position.
Naming Your Spouse
Most married plan participants list their spouse as the primary beneficiary for their Solo 401(k).
If your spouse will continue the business that sponsors the Solo 401(k), they can simply move the existing account into their name. They can alternately rollover to an IRA in their name.
In any spousal inheritance, the plan funds are treated as theirs and subject to all the same rules and timelines for distributions as if the account was initially opened in their name.
Alternately, a spouse can choose to be treated as a beneficiary. This will allow the spouse to take distributions from the account without a 10% penalty for early distribution if they are under age 59 ½. This beneficiary election requires an IRA rollover, and subjects the account to Required Minimum Distributions using the spouse’s life expectancy table. A beneficiary IRA of this type cannot be consolidated with other retirement plans in the spouse’s name.
Naming a Non-Spouse
You can name any individual or entity as a beneficiary for your plan. Depending on your marital status, family structure, and goals, you might choose to name one of more of the following:
- Children
- Parents
- Siblings
- A Trust
- Friends
- Educational institutions
- Charitable organizations
Rules for the timing of distributions will vary based on the type of beneficiary.
Community Property States
If you live in a community property state and are married, you must obtain your spouse’s written consent if you wish to name anyone other than your spouse to receive all or part of the primary beneficial share.
Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
Trust as Beneficiary
Naming a trust as beneficiary for your IRA can have several advantages in certain scenarios.
If you have beneficiaries who are minors or otherwise unable to care for themselves, using a trust is a good way to ensure your instructions for their care are followed.
A trust allows you control contingent beneficiaries over time. If you were to directly name a second spouse as your beneficiary, they could then choose to change the designations on the account and cut out children from a first marriage you may wish to leave funds to. A properly implemented trust will eliminate such a situation.
Taxation can occur at the trust level or flow to the receiving beneficiary depending on trust design.
Proper use of a trust beneficiary can be complex. Be sure to utilize qualified counsel if you choose a trust beneficiary.
If you have a trust named as beneficiary on your Solo 401(k), it would be a good idea to ensure it is compatible with the changes created by the SECURE Act.
Different Beneficiary Types & Distribution Rules
Who you name as beneficiary can determine how quickly the account needs to be distributed.
A non-named beneficiary such as an estate, charity, or trust that does not specifically name individual beneficiaries will need to distribute the entire plan value within a 5-year period if the account holder was under the age of 72 when they passed. If the plan participant was age 72 or older at the time of death, the life expectancy table of the owner is used to determine the required minimum distribution amount each year.
An “Eligible Designated Beneficiary” will be able to distribute the account over time. The longer of the beneficiary’s or the account holder’s life expectancy table will be used to determine the minimum required distribution each year. Eligible Designated Beneficiaries include:
- The owner’s spouse if electing beneficiary status.
- Owner’s children under the age of 18, though they must then fully distribute the IRA by the age of 28 – ten years from reaching majority.
- A disabled or chronically ill individual
- Any other individual who is not more than 10 years younger than the original IRA owner
A designated individual who is not such an Eligible Beneficiary must distribute the account in full by the end of the 10th year following the original account holder’s death.
Keep Designations Up to Date
A regular review of beneficiary designations is important. We recommend a mid-year financial review in the summer when other tax matters are in the background. This is a good time to ensure plan beneficiary designations are in good order. Events such as the death of a beneficiary or a name change associated with marriage may require an update to your beneficiary designation form.
Be Sure your Beneficiaries Know about your Solo 401(k)
The investment holdings of a self-directed Solo 401(k) are often unique, and there is no 3rd party bank or brokerage that tracks the details or provides a statement. It is a good idea to produce your own statement periodically.
When you use your Solo 401(k) to invest in real estate, private funds, cryptocurrency, and other alternative assets, you are really the only person who knows what the plan holds.
It is therefore important that you maintain up to date records about your plan’s investments in a place known to the person who you have chosen to administer your affairs.
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Quick answers to common questions
We’ll take you through a simple, step by step process designed to put your investment future into your own hands…immediately. Everything is handled on a turn-key basis. You take 100% control of your Retirement funds legally and without a taxable distribution.
YES! In 1974, Congress passed the Employee Retirement Income Security Act (ERISA) making IRA, 401(k) and other retirement plans possible. Only two types of investments are excluded under ERISA and IRS Codes: Life Insurance Contracts and Collectibles (art, jewelry, etc.). Everything else is fair game. IRS CodeSec. 401 IRC 408(a) (3)
It’s actually pretty simple. Early on, regulators let the securities industry take the lead in educating the public about retirement accounts. Naturally, brokers and banks promoted stocks, bonds, and mutual funds—giving the impression that those were the only allowed investments. That was never true... and still isn’t. You can probably guess why they kept the rest under wraps.
It is possible to use funds from most types of retirement accounts:
- Traditional IRA
- Roth IRA
- SEP IRA
- SIMPLE IRA
- Keogh
- 401(k)
- 403(b)
- Profit Sharing Plans
- Qualified Annuities
- Money Purchase Plans
- and many more.
It must be noted that most employer sponsored plans such as a 401(k) will not allow you to roll youraccount into a new Self-Directed IRA plan while you are still employed. However, some employers will allow you to roll a portion of your funds. The only way to be completely sure whether your funds are eligible for a rollover is by contacting your current 401(k) provider.
A Solo 401(k) requires a sponsoring employer in the format of an owner-only business. If you have a for-profit business activity – whether as your main income or as a side venture – and have no full-time employees other than potentially your spouse, your business may qualify. The business may be a sole-proprietorship, LLC, corporation or other entity type.
A self-directed retirement plan is a type of IRA or 401(k) that gives you greater control over how your retirement funds are invested. Unlike traditional accounts held at banks or brokerage firms that limit you to stocks, bonds, and mutual funds, self-directed plans allow you to invest in a wide range of alternative assets including real estate, private businesses, precious metals, cryptocurrency, and more.
These plans still follow the same IRS rules and maintain the same tax-deferred or tax-free benefits as conventional retirement accounts. The difference is simply in how and where you choose to invest.
No. Moving to a self-directed IRA or Solo 401(k) does not trigger any taxes, as long as your funds are eligible for rollover.
Self-directed retirement plans maintain the same tax-advantaged status as traditional plans offered by banks or brokerage firms. The key difference is flexibility—our plans are designed to give you greater control and allow for a wider range of alternative investments beyond stocks, bonds, and mutual funds.
A prohibited transaction is any action between your retirement plan and a disqualified person that violates IRS rules and can lead to serious tax consequences. Under IRS Code 4975(c)(1), prohibited transactions include:
- Selling or leasing property between your plan and a disqualified person Example: Your IRA cannot purchase a property you already own.
- Lending money or extending credit between the plan and a disqualified person Example: You cannot personally guarantee a loan your IRA uses to buy real estate.
- Providing goods or services between your plan and a disqualified person Example: You can’t use your personal furniture to furnish a rental property owned by your IRA.
- Using plan income or assets for the benefit of a disqualified person Example: Your IRA cannot buy a vacation home that you or your family use.
- Self-dealing by a fiduciary (using plan assets for their own benefit) Example: Your CPA shouldn't loan your IRA money if they’re advising the plan.
- Receiving personal benefit from a deal involving your IRA's assets Example: You can’t pay yourself from profits your IRA earns on a rental.
If a transaction doesn’t clearly fall within the allowed guidelines, the IRS or Department of Labor may review the situation to determine if it qualifies as a prohibited transaction.
Disqualified persons are individuals or entities that are prohibited from engaging in certain transactions with your IRA or 401(k). Doing so could trigger a prohibited transaction, which may result in taxes and penalties.
Here’s who is considered a disqualified person:
- You (the account holder)
- Your spouse
- Your parents, grandparents, and other ancestors
- Your children, grandchildren, and their spouses
- Any advisor or fiduciary to the plan
- Any business or entity owned 50% or more by you or another disqualified person, or where you have decision-making authority
These rules exist to prevent self-dealing and ensure your retirement plan remains in compliance with IRS regulations.
(Reference: IRC 4975)
Understanding and following these rules can be tricky, but it’s very doable. The best way to stay compliant is to work with professionals who specialize in self-directed retirement plans. They can help you navigate IRS guidelines and avoid prohibited transactions.
If an IRA holder is found to have engaged in a prohibited transaction with IRA funds, it will result in a distribution of the IRA. The taxes and penalties are severe and are applicable to all of the IRA’s assets on the first day of the year in which the prohibited transaction occurred.
Yes. While self-directed retirement plans allow for a wide range of investments, there are a few important restrictions.
You cannot invest in collectibles or life insurance contracts, and you must avoid prohibited transactions—activities that benefit you personally rather than the retirement plan. These include things like buying or selling property to yourself or family members, using plan assets for personal gain, or self-dealing in any way.
Violating these rules could cause your entire IRA to lose its tax-advantaged status. To protect your account, it’s essential to work with professionals who understand IRS regulations and can help you stay compliant.
This is a common misconception. In many cases, professionals may simply be unfamiliar with self-directed retirement plans, as they fall outside their usual scope of work. CPAs and tax preparers are trained to file taxes, not necessarily to advise on alternative retirement strategies. Financial advisors and brokers often work for firms that focus on traditional investments like stocks and mutual funds—and may not benefit from or support alternative options like real estate or private lending.
Self-directed retirement investing is legal under IRS rules—but like any specialized area, it requires working with professionals who understand how it works.
The IRS has rules in place to make sure your IRA is used only for the exclusive benefit of the retirement account—not for personal gain or to help family members. These rules can get complicated because there are many ways a conflict of interest can occur, even unintentionally.
For example, if your IRA buys a house and rents it to your mother, you might be reluctant to evict her if she stops paying rent. That emotional connection creates a conflict between what’s best for your IRA and your personal relationships, something the IRS aims to prevent.
These rules help ensure your retirement account stays compliant and protected. (See IRC 408)
Yes. Most tax-deferred retirement accounts—such as Traditional IRAs, old 401(k)s, 403(b)s, and TSPs—can be rolled over into a self-directed IRA or Solo 401(k), depending on your eligibility. Roth IRAs cannot be rolled into these accounts.
You can contribute directly from earned income, subject to annual IRS contribution limits. The method and amount depend on the type of plan you have (e.g., Solo 401(k) vs. IRA).
To take a distribution, you'll request funds through your custodian or plan administrator. Distributions may be taxable depending on your account type and age. Early withdrawals may be subject to penalties.
For 2025, the Solo 401(k) max contribution limit is $81,250 if age 60-63, $77,500 if age 50-59 or 69+, and $70,000 if under 50. Traditional and Roth IRAs have a limit of $7,000 ($8,000 if age 50+). Limits are subject to IRS adjustments.
Yes. IRA contributions are typically due by your personal tax filing deadline (e.g., April 15). Solo 401(k) contributions follow your business tax filing deadline, including extensions.
IRS reporting requirements vary depending on the type of self-directed retirement plan you have. Here’s a quick breakdown of what you need to know
Please note: Our team can help you understand what’s required for your specific account, but we don’t provide tax or legal advice. We always recommend working with a qualified tax professional to ensure full IRS compliance.
Self-Directed IRA (Traditional or Roth)
- Form 5498 – Filed by your custodian each year to report contributions, rollovers, and the fair market value (FMV) of your account.
- Form 1099-R – Issued if you take a distribution or move funds out of your IRA.
- Annual Valuation – You'll need to provide updated FMV for any alternative assets held in the account, such as real estate or private placements.
Solo 401(k)
- Form 5500-EZ – Required if your plan assets exceed $250,000 as of year-end. Must be filed annually by the plan participant.
- Form 1099-R – Required if you take a distribution or roll funds out of the plan.
- Contribution Tracking – Keep records of employee and employer contributions. These are not filed with the IRS but may be needed for tax reporting or audits.
SEP IRA
- Form 5498 – Filed by your custodian to report contributions and FMV.
- Form 1099-R – Filed by your custodian. Issued for any distributions.
- Employer Contributions – Must be reported on your business tax return (and on employee W-2s, if applicable).
Health Savings Account (HSA)
- Form 5498-SA – Filed by your HSA custodian to report contributions.
- Form 1099-SA – Filed by your HAS custodian. Issued for any distributions.
- Form 8889 – Must be included with your personal tax return to report contributions, distributions, and how funds were used.
