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Solo regular and Roth 401k Rollover and Roth IRA basis Withdrawal
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2 Replies
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Hi folks.
I had a consulting business under a CA single member LLC with this 401k and 401K Roth plan.
I closed the LLC in Jan 2025, with the business having ceased operations in 2024.
I would like to roll them respectively into my traditional and Roth IRAs (housed at a different custodian). It’s possible I may want to rollover only the Roth 401K plan/portion. For IRS reporting I have them as plans 001 (regular) and 002 (Roth).
I don’t recall putting in any specific restrictions when setting up these plans beyond whatever was in the boilerplate, in terms of rollover.
I moved from CA to FL and set up a new FL single member LLC in Feb 2025, with a similar consulting service intention. However, I’ve not done any business under it. I will likely close it before EOY 2026. It did not have any retirement plan attached.
1. How do I need to proceed to roll the CA LLC 401K and Roth 401K? Is it possible to rollover just the Roth 401K (plan/)portion? Am I OBLIGATED TO roll them over and close the 401K (both) now that the LLC is closed?
Of course the rollover will go on my 2026 1040 tax return, but do I need to also do anything as administrator, besides reflect any change that goes on form 5500-EZ as a result?
2. I’d like to take out my contribution basis from the Roth IRA (minus one less-than-5yr pretax IRA to Roth IRA conversion amount) including the contribution basis in the rolled over Roth 401k amount. I understand that once converted to Roth IRA, there is no restriction to be prorated (amongst basis and earnings like a 401k withdrawal) and the basis part of the rolled in amount is treated like any other directly contributed basis in the Roth IRA.
Am I getting this right? Anything else I need to think of? or Do?
3. Also pretty sure I’m totally overthinking at this point, but does the existence of my Florida LLC (without any transaction to date) somehow mean a continuation of my being “in-service” vis a vis my plan under the old (now closed) CA LLC??
— I can close the FL LLC tomorrow if needed.
— I need to be able to do the rollover and Roth basis withdrawal as soon as possible/ in the next month or so.
Thanks a lot.
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Since the California LLC ceased operations in 2024 and was dissolved in January 2025, the Solo 401k plan sponsored by that business needs to be terminated, assuming the business is no longer operating and the plan has not been continued under another qualifying self-employed business.
The pretax solo 401k funds can be transferred to an IRA. The Roth solo 401k fund can be transferred to a Roth solo 401k.
Regarding IRS reporting:
1. Form 1099-R is required to report the direct rollovers from the Solo 401k to the respective IRAs. For clients of My Solo 401k Financial, we prepare the required Form 1099-R when the applicable online distribution forms are completed. https://www.mysolo401k.net/learn/forms/
2. A final Form 5500-EZ is required when the Solo 401k plan is terminated and all assets have been distributed, regardless of whether the plan value exceeds $250,000.
3. If the plan is fully terminated and its assets distributed in 2026, the final Form 5500-EZ is generally due July 31, 2027.
Once Roth Solo 401k funds are directly rolled over to a Roth IRA, the Roth IRA distribution ordering rules apply rather than the pro-rata distribution rules applicable to nonqualified Roth Solo 401k distributions.
Under the Roth IRA rules, distributions are generally treated as coming out in the following order:
1. Regular Roth IRA contributions, which can be withdrawn tax-free and penalty-free at any time.
2. Roth IRA conversions and rollovers, generally in chronological order.
3. Earnings, which are distributed last.
Importantly, when a nonqualified Roth Solo 401k distribution is rolled over to a Roth IRA, the portion representing the Roth Solo 401k contribution basis is treated as contribution basis for purposes of the Roth IRA distribution ordering rules. The earnings portion does not receive the same treatment.
Therefore, the original designated Roth Solo 401k contribution basis can generally be withdrawn from the Roth IRA without income tax or early withdrawal penalty once the rollover has been completed.
The Roth IRA conversion completed less than five years ago does not prevent the withdrawal of available regular contribution basis, including qualifying basis from the Roth Solo 401k rollover.
However, the five-year conversion rule remains relevant if distributions reach amounts attributable to a taxable Roth conversion completed within the preceding five tax years. Those amounts may be subject to a 10 percent early distribution penalty for individuals younger than age 59½, unless an exception applies.
The Roth IRA ordering rules apply across all Roth IRAs owned by the individual, not separately to each Roth IRA account.
For the Roth Solo 401k rollover, the distinction between contribution basis and earnings is important. The receiving Roth IRA custodian will need the applicable information to distinguish those amounts.
Also, a Roth IRA distribution that satisfies both the five-tax-year Roth IRA holding period and the applicable qualifying event, such as reaching age 59½, can generally be withdrawn entirely tax-free, including earnings.https://www.mysolo401k.net/solo-401k/roth-solo-401k-rules-contributions-distributions-transfers/?utm_source=chatgpt.com
The mere existence of the Florida LLC does not automatically mean the Solo 401k owner remains in service under the California LLC’s Solo 401k plan.
What matters is whether the Florida LLC represents a continuation of the self-employed business sponsoring the Solo 401k plan and whether the plan has been amended to reflect the change in sponsoring business.
Based on the information provided, the California LLC ceased operations in 2024 and was dissolved in January 2025. The Florida LLC was established in February 2025 but has not conducted any business activity or generated self-employment income. Furthermore, the Florida LLC was not added as the sponsoring business under the Solo 401k plan.
Therefore, the existence of the inactive Florida LLC does not, by itself, prevent the termination of the California business’s Solo 401k plan and the subsequent direct rollovers to IRAs.
It is not necessary to dissolve the Florida LLC solely to process the Solo 401k rollovers. Nevertheless, the termination and rollover documentation needs to accurately reflect the business circumstances.
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