Indirect Rollover

Q: I just did an indirect rollover to fund my new self-directed IRA or Solo 401(k), which means that my prior custodian/trustee will issue a 1099R and mark it as a distribution. How do I advise the IRS that I redeposited the funds within 60 days into my new self-directed IRA or Solo 401(k) so that they won’t tax me?

A: What you have to do depends on your personal situation. Here are some of the more common scenarios.

Rollover from an IRA to a self-directed IRA

When your new custodian issues your first annual 5498, they will indicate (in box 2) that they received a rollover, and the IRS will cross reference this with the 1099R. Thus no taxes will be due.

Rollover from an IRA to a Solo 401(k)

When you file your taxes (Form 1040) fill in box 4a with the amount of the indirect rollover, and in box 4b write “$0 rollover”. (If your accountant has any questions about this, please refer them to the IRS’s 1040 Instructions, under the heading “Lines 4a and 4b”.)

Rollover from a 401(k) to a Solo 401(k)

When you file your taxes (Form 1040) fill in box 5a with the amount of the indirect rollover, and then in box 5b write “$0 rollover”. (If your accountant has any questions about this, please refer them to the IRS’s 1040 Instructions, under the heading “Lines 5a and 5b”.)

Alternative method for any kind of rollover to a Solo 401(k)

1. The following Footnote can be included with your personal tax return:
   FOOTNOTE: Non Taxable Rollover – Taxpayer has a Solo 401k plan that is a “Qualified Plan” pursuant to Internal Revenue Code Section 401, which is the recipient of indirect rollover contributions from another Qualified Plan or IRA. Said rollover contributions were received and deposited within 60 days per Internal Revenue Code Section 402(c)(3).
2. Although it is not necessary to file a 5500EZ for a Solo 401(k) that has less than $250k of assets, a plan holder may file if he/she so wishes. This would be an alternative way to advise the IRS of the indirect rollover. Simply fill in the amount of the indirect rollover in box 7C and the IRS will cross reference this with the 1099R. Thus no taxes will be due.