Funding Your Solo 401(k) With Rollovers

When you’re ready to go into business for yourself, there’s so much to think about – including a plan for your eventual retirement. Even though it may be decades away, automatic contributions and matches from your old employer might not be enough to carry you through to your golden years. Setting up a Solo 401(k) might be your first step to getting your retirement savings ready for the future.

What do you need to know about funding your retirement savings by rolling over an IRA or 401(k) into a Solo 401(k)?

We’ve put together a definitive guide to help you make the most of your new business, maximize your retirement earnings, and simplify your financial future. 

Can You Rollover IRA Funds into a Solo 401(k)?

Many people who have worked in the corporate world for a little while gain access to retirement savings plans as part of the perks of the job. When you branch out on your own, you may wonder what you can do with these funds when additional contributions from your employer are no longer an option. 

Can you rollover 401(k) or IRA funds into your new Solo 401(k)?Yes! You can potentially roll over your prior earnings and contributions into this new retirement savings plan if you want to keep everything under one umbrella. 

Here are a few of the rollover sources you might already have that can be transferred to a Solo 401(k):

  • Traditional IRA: In a traditional IRA, you make contributions to your retirement savings plan with pre-tax dollars and pay taxes only when you take distributions later in your golden years. You can grow your account nest egg to greater heights and reduce taxable income for the year, ideal when you will be in a lower tax bracket in retirement. 
  • Other 401(k) Plans: Maybe you had another 401(k) plan as part of your employment benefits. It should be fairly straightforward to roll these funds over into your new Solo 401(k). As long as you are transferring from two IRS-approved plans, you should have no issue.
  • SIMPLE IRA: If both employees and employers in a small business are making contributions to a retirement savings plan, then you could be looking at a SIMPLE IRA. The employer is required to match up to three percent of your compensation if you are eligible (which can be like free money for the future). You must be a participant in the SIMPLE IRA for 2 years before you can roll into a 401(k).
  • SEP IRA: SEP IRAs are another type of traditional IRA that is available not just to small businesses. Instead, employers can contribute up to 25 percent of employee compensation. In this type of plan, your employer is the primary contributor but you can take these funds to your Solo 401(k) in the future, if desired. 

What about a Roth IRA?

Roth IRAs are the opposite of a traditional IRA. Roth IRAs allow you to contribute your money after taxes and take tax-free distributions in retirement. This is the only type of retirement savings account that you cannot roll into your Solo 401(k).

Why Roll Over IRA Funds to a Solo 401(k)?

Your self-employed retirement savings plan should be as unique as you are. There are lots of reasons why you might choose to roll over your IRA funds to a Solo 401(k) when you decide to branch out and open a new business where you’re in charge of retirement savings contributions. Whether this is the right move for you depends on your financial situation and portfolio.

Here are a few reasons why you may consider making the move. 

Consolidation

For many business owners, managing multiple retirement savings accounts is an administrative headache. Instead of logging into three or four different platforms, you might want to simplify portfolio management by moving all eligible accounts under one umbrella in your Solo 401(k).  

This means less work for you, plus more transparency about your financial state. When everything is in one place, you can more easily see what you’ve contributed.

Lower Costs

The costs associated with maintaining your Solo 401(k) may be lower than what you encounter in a traditional IRA or an employer 401(k). Sit down with the list of fees that you rack up in your Solo 401(k) compared to your IRA and see where you get the best fees. Chances are you can slash the cost of managing your retirement savings account by making the switch.

Earlier Access to Money

Maybe you’re more concerned with when you’re planning to retire. If you choose not to wait for the minimum age for distributions, you may face steep penalties. If financial independence and early retirement seem likely, you can tap into a 401(k) at age 55 compared to age 59 ½ for IRAs.

Loan Flexibility 

Did you know that business owners can take out a loan against their Solo 401(k)? This isn’t the same when you’re considering your traditional IRA. If you think you may need a little bit of capital to float you through a particularly lean time in your new entrepreneurial endeavor, then a Solo 401(k) might be the best way to go. 

Asset Protection

Generally speaking, Solo(k)s offer better protection against creditors compared to IRAs. For a new business owner who is concerned about potential liabilities when opening the doors to customers and having to pay vendors, it might be essential to protect your nest egg for your golden years. 

Take Control of Your Future with a Solo(k)

When you’re thinking about ditching a corporate job and setting up shop to be your own boss, it’s absolutely essential to think about how you’ll prepare for retirement without the support of a corporate 401(k). 

With Retire4one, you can set up all the legal paperwork for your Solo(k) in less than five minutes! We’ll help you navigate the logistics of setting up your plan, plus assist in setting up your account with our partner, Voya. 

Ready to move into retirement feeling positive about your decisions along the way? Reach out to us today to learn more about how we can help!