Rollover A Solo 401(k) to a Checkbook IRA
A self-directed Solo 401(k) is a great retirement plan. With high contribution limits and the ability to invest in anything the IRS rules allow for like real estate and private equity, the Solo 401(k) is one of the best ways to take control of your retirement savings.
The one drawback of a Solo 401(k) is the required linkage to active self-employment in an owner-only business. If your business grows to hire employees or you decide to shut your self-employment activity down, you may no longer qualify to have a Solo 401(k).
Fortunately, there is a good option if your Solo 401(k) reaches this end-of-use moment.
Solo 401(k) Qualification
A Solo 401(k) is an employer sponsored retirement plan. That means the plan is linked to one or more business entities that establish the plan as an employee benefit.
Any kind of active business can sponsor a Solo 401(k), including sole proprietorships, LLCs, corporations, and partnerships. The business just needs to produce active, earned income. Passive activities like rental property or other investment holding vehicles cannot sponsor a retirement plan.
The simplicity of a Solo 401(k) stems from the fact that there are no non-owner employees covered by the plan. The sponsoring employer, or any other business controlled by the business owner, cannot have any full-time employees working more than 1,000 hours per year. Long-term, part-time employees working 500 or more hours per year in two consecutive years will also qualify for retirement benefits and disqualify a business from having a Solo 401(k).
Events that End Qualification
When you decide to establish a Solo 401(k) for your business, you need to ensure that your business continues to qualify to sponsor the plan into the future. Some events can put you in a situation where you no longer qualify for the Solo 401(k). These include:
- Closing your business and not maintaining any other form of self-employment.
- Hiring full-time or long-term, part-time employees in the business that sponsors the plan.
- Being a controlling owner of a separate business that has full-time or long-term, part-time employees.
So, what do you do if you have a Solo 401(k) holding non-traditional assets like real estate or notes and you need to close the plan?
The Checkbook IRA Option
For investors who want to continue to be fully diversified and in control of their retirement investments, a checkbook control IRA provides a great back-up option for the Solo 401(k).
Like the Solo 401(k), a checkbook self-directed IRA has the ability to invest in anything the IRS rules allow for. If you are used to being able to execute contracts and deploy plan funds at a moment’s notice without 3rd party processing, you will appreciate the same benefits from the self-directed IRA.
While based on the IRA retirement plan format with a different structural design, a self-directed IRA functions very much like a Solo 401(k) as an investment vehicle.
One key difference between the Solo 401(k) and IRA is that the IRA requires a 3rd party custodian to be the record keeper and intermediary for IRA layer transactions like contributions, rollovers, or distributions.
The way to obtain checkbook control in an IRA environment is to have the custodian-held IRA invest into a specially crafted LLC. The IRA owns the LLC. You can be the manger of the LLC and direct the affairs of the LLC.
The end result is much like your Solo 401(k). Plan capital is held in a legal entity for which you have the authority to act on behalf of the plan.
The Rollover Process
Because we want to have an LLC that holds plan investments on the IRA side, it is easier to form that LLC within the current Solo 401(k) first.
Once a new LLC is formed under the umbrella of the Solo 401(k), all the current investments of the Solo 401(k) are transferred into the LLC. This event is a transfer-to-self since the 401(k) owns the assets that are then placed into the 401(k)-owned LLC. There is no special reporting or taxable event associated with the transaction.
Once all 401(k) assets have been placed in the LLC, the LLC itself is then rolled over in-kind to a new self-directed IRA custodian.
Voila! The Solo 401(k) has been closed and rolled over to an IRA. The investments of the Solo 401(k) remain in place and there is no tax on the rollover.
Solo 401(k) Plans with Multiple Accounts
The process can be a bit more complex if your Solo 401(k) holds a mix of tax-deferred and Roth funds. While a Solo 401(k) can separately hold both types of retirement money, an IRA is either Traditional or Roth.
In this scenario, you will need to create separate IRAs. The Solo 401(k) will then need to create a tax-deferred LLC and a Roth LLC for rollover to the separate IRA accounts, respectively.
Similarly, if your Solo 401(k) has more than one participant, such as a spouse or business partner, the plan assets will need to be allocated accordingly.
A One-Year Window
In most cases, you will have at least one year to make a graceful exit from your Solo 401(k). Depending on your specific Solo 401(k) plan document, qualified employees may not be granted benefits until they have a year of eligibility.
The key thing to keep in mind is that a Solo 401(k) is not a set-it-and-forget-it program. You should regularly check on your plan status to make sure you are still eligible to sponsor the plan. If you find you no longer qualify, reach out to your plan provider to plan a graceful exit.
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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.
