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Real Estate in Pre-Tax Solo401K converting to ROTH Ira
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6 Replies
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Assuming that one meets the eligibility requirements (“triggering event”) for completing a transfer from a pre-tax solo 401k account to a Roth IRA (see more HERE), assets in the pre-tax solo 401k account including real estate that is not subject to debt-financing may be transferred to a Roth IRA.
Such a transfer will be a reportable event and our clients use the following form to provide us the information needed to prepare the 1099-R to report the transfer: https://www.mysolo401k.net/pretax-solo-401k-to-roth-ira-conversion-form/
As described on the form, the fair market value of the real estate would need to be reported.
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Hi George
Just for clarification, I just realized I should have been asking:
Real Estate Conversion from Solo 401k Pre-Tax to a Solo 401K Roth
I would expect the answer is the same, as you previously responded. I just want to ensure I didnt have any confusion or cause any for others.
Real estate still has to have no debt
Real estate value must be obtained via comps/realtor etc (that would be the value assessed taxes for the conversion).
Am I understanding correctly?
Thank you
Roberta
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The rules are different for an in-plan conversion of assets from a pre-tax Solo 401k sub-account to a Roth Solo 401k sub-account:
1) There is no triggering event such that one may transfer cash and assets at any time, in any amount, and any interval.
2) The transfer is taxable and reportable – our clients need to submit the following online form to provide us the information to prepare the required 1099-R (which we handle as part of our service for no additional charge): https://www.mysolo401k.net/pretax-to-roth-solo-401k-in-plan-conversion-form/
3) For an in-kind in-plan Roth conversion of assets, one must provide the fair market value of the asset, and this value is considered the taxable amount.
4) For an in-kind in-plan Roth conversion, the real estate is not being re-titled (i.e. it is still held in the name of the Solo 401k and the fact that the asset is held in a Roth sub-account is tracked at the plan level and not on the real estate title or other real estate records). Moreover, it is acceptable from a Solo 401k perspective to process an in-plan conversion of real estate that is subject to non-recourse financing provided that the loan is paid back with funds from the Roth Solo 401k sub-account after the conversion.
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Hi George & Team,
We are pulling the trigger on a Real Estate Conversion from Pre-Tax Solo 401k account to our ROTH Solo 401k account. (I believe you referred to it as an in-kind conversion)
1) Do we still deal with form 945 and a mandatory 20% tax on the conversion Or just the1099 (that Mysolo401k dot net files for us) and we pay taxes at time of conversion and/or at estimated tax time; based on preference.
2) We are not required to take RMD’s yet on any of our accounts, as we are not of age. Therefore, we dont need to worry about RMD’s being required on this conversion, even tho the conversion is being done in 2023, due to the Secure 2.0 no longer requiring RMD’s as of 2024 on ROTH Solo401K’s correct?
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1) Confirmed that neither Form 945 nor 20% withholding is required for pre-tax to Roth Solo 401k in-plan conversions.
2) Confirmed that the Secure Act 2.0 eliminated the RMD requirement for Roth Solo 401k plans – learn more: SECURE 2.0 Act Expands Roth Self-Directed Solo 401k Provisions Including No More RMDs from Roth Solo 401k Funds – My Solo 401k Financial
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