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January 21, 2025

Can I Roll an IRA Into a Solo 401(k)?

Key Points 

  • Rolling an IRA into a Solo 401(k) offers high contribution limits and tax advantages.
  • Solo 401(k) plans allow investors to include alternative assets in their retirement portfolios.
  • Broad Financial provides streamlined support in setting up a Self-Directed Solo 401(k).
A mature couple on the couch reviewing how to roll an IRA into a Solo 401(k)

If you’re self-employed with no W-2 full-time employees other than yourself and perhaps your spouse, you may be eligible for the unique advantages of a Solo 401(k). Many people ask, “Can I roll my IRA into a Solo 401(k)?” Generally, the answer is yes, and doing so can be appealing in several ways. Let’s explore the details of how this rollover works, IRS rules to follow, and key factors to consider for a smooth transition.

Rolling an IRA into a Solo 401(k)

A Solo 401(k) offers valuable retirement savings features, including high contribution limits and tax advantages. A Self-Directed Solo 401(k) opens up even more options by allowing investments in both Wall Street products and alternative assets, like real estate and private placements. This plan gives you the freedom to shape your portfolio based on your interests and goals.

Typically, most IRAs—including Traditional, SEP, and SIMPLE IRAs—can be rolled into a Solo 401(k) without triggering taxes. This option provides a seamless way to integrate your existing retirement funds into a plan that may align more closely with your long-term financial strategy.

Can a Roth IRA Be Rolled Into a Solo 401(k)?

Unlike Traditional IRAs, Roth IRAs can’t be rolled into a Solo 401(k) due to their distinct tax structure. Roth IRAs are funded with after-tax dollars, so qualified withdrawals are generally tax-free in retirement. In contrast, contributions to a Solo 401(k) are usually made on a pre-tax basis, with funds growing tax-deferred and taxes later applied upon withdrawal. Because of this difference in tax treatment, the IRS doesn’t permit a Roth IRA to roll directly into a Solo 401(k).

However, if you’re seeking the benefits of Roth tax treatment within a Solo 401(k), there are alternatives. One option is to open a separate Self-Directed Roth Solo 401(k), which allows after-tax contributions like a Roth IRA but with the expanded investment flexibility of self-directed investing. This setup can be ideal if you’re looking to diversify your portfolio with alternative assets while still benefiting from tax-free growth.

Another option is available if you already hold a Roth 401(k) from an employer. The IRS allows Roth 401(k) funds to be rolled into a Self-Directed Roth Solo 401(k), preserving the tax-free growth benefits of Roth contributions while also giving you control over a wider range of investment choices.

Benefits of Rolling an IRA Into a Self-Directed Solo 401(k)

For self-employed individuals, rolling an IRA into a Solo 401(k) can offer a more strategic retirement savings approach with several key benefits, including:

A block of arrows increase as it moves down the line, indicating that by investing in private placements with a Self-Directed IRA, you can potentially oversee steady returns.

Increased Contribution Limits

Solo 401(k) plans offer higher contribution limits compared to IRAs. For 2024, self-employed individuals under age 50 can contribute up to $69,000 annually through combined employee and employer contributions. Those aged 50 or older can contribute up to $76,500, which includes a $7,500 catch-up contribution. These limits significantly exceed other IRA contribution caps, providing a powerful tool for those who qualify to maximize tax-advantaged retirement savings through both employee and employer contributions.

Broader Investment Choices

With a Self-Directed Solo 401(k), investors have access to a much broader range of asset types including the basic stocks, bonds, and mutual funds as well as alternative investments. For example, if you're experienced in real estate, you could use your Self-Directed Solo 401(k) funds to purchase property, potentially generating rental income and long-term appreciation within a tax-advantaged account. Portfolio diversification not only helps balance traditional asset fluctuation but also offers opportunities to leverage market niches and personal expertise.

Loan Option

A Solo 401(k) gives you the option, if needed, to borrow from your own retirement funds. With a Solo 401(k), you can take a loan of up to 50% of your account balance, or $50,000 (whichever is lower), without penalty or tax implications, provided it’s repaid within five years at a reasonable interest rate. This feature can be particularly useful in managing cash flow needs or handling unexpected expenses, without sacrificing long-term retirement growth.

Potentially Lower Fees

Consolidating retirement funds into a Solo 401(k) can streamline management and potentially reduce overall account fees. You can invest in any combination of stocks, bonds, and alternative assets with this retirement plan. When rolling over multiple IRAs or other retirement accounts into one Solo 401(k), you may be able to reduce administrative costs, which vary by custodian.

Steps to Roll an IRA Into a Solo 401(k)

Rolling over an IRA into a Solo 401(k) involves a few straightforward steps to keep your retirement savings tax-advantaged. First, you’ll check that you’re eligible for a Solo 401(k). If you meet the requirements, the next step is to open a Solo 401(k) with an experienced firm like Broad Financial. You’ll then head to the bank of your choice and set up a dedicated checking account for your Solo 401(k).

After your plan is created, you’ll request a direct rollover from your current IRA custodian. This step moves your funds directly to your Solo 401(k) without triggering taxes or penalties. To invest, you’ll simply write a check or send a wire from your Solo 401(k)’s designated checking account. Ready to get started? Contact us today!


Disclaimer: Broad Financial LLC does not provide legal, tax, or investment advice. Please consult with your tax or legal advisor before making investment decisions. 

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