What happens to my solo 401k when I retire?

I have a business lawyer (who set up my LLC)  and a retirement planning consultant (Who set up the Solo 401K), and an Tax accountant. Between them I cannot get a consistent answer to my questions on this subject.

I run my own one man IT design  businesses, I provide fixed price system design  deliverables but  would like to retire soon and am wondering what will happen to my Solo 401K.

I have invested the about 65% of the  401K funds  in real state (rentals) and the  rest in the stock market( FTE’s and mutual funds).  My accountants thinks that I will no longer qualify for the 401K if I stop consulting and hence have no Schedule C income. So I will have to close the 401K and roll the funds over to an IRA. However it does not seem to be possible to roll-over real estate.

My wife and I are starting a vacation rental which we will supply with fresh fruits and vegetables from our adjacent garden, we will also supply breakfast and cleaning services. WE were hoping this would qualify as Schedule C income, but my accountant is not sure this would qualify as the majority would be rental income which does not qualify.

I am making a much larger return on the real-estate investment than I am on the stock investment and need the income to sustain a reasonable pension.

QUESTION 1: First off is my accountant correct, do I have to close my 401K? Or can I keep it in existence once I retire, and/or will my vacation rental/B & B qualify as Schedule C income?

ANSWER: While the 401k regulations do not specifically detail that the solo 401k must be terminated once the business for which the solo 401k was set up for ceases, it is generally best practice to terminate the solo 401k after a couple of years commencing from the date the self-employed business closed its doors. Nonetheless because the IRS has not clearly addressed this issue it would be tough for the IRS to challenge this as long as your solo plan stays up to date (i.e., the solo 401k plan document is updated for changes in the law).

However, based on the information provided, it appears that your vacation rental would qualify as a self-employed business because you are performing work (supplying breakfast and cleaning services) that leads to earned income. Per page 5 of IRS publication 560 “Self-employment can include part-time work.”

QUESTION 2: If I have to close the 401K how do so and  keep the real estate without it costing 10’s of thousands of $$? ( I have been told I can set up a special IRA, have the 401K sell it to a third party then have the IRA buy it,  but I believe that is difficult and expensive).

ANSWER:  The real estate holdings or any other assets may be transferred in-kind to a self-directed IRA. This would entail preparing assignments and grant deeds to change the title of the property from the solo 401k to the IRA. When done under this fashion, the transfer to the IRA from the solo 401k is reported as a non-taxable direct rollover.

Click here for a name of a company that specializes in self-directed IRAs.

Thanks Bill in California