Solo 401k Distribution Rules: Profit Sharing vs. Employee Salary Deferral

A solo 401k plan consists of both employee contributions and profit sharing contributions and both have separate distribution rules.


Employee contributions under a 401(k) plan are subject to more restrictive provisions than profit sharing dollars. Elective deferrals generally may not be distributed including processing a transfer to an IRA before one of the following triggering events occurs:

• attainment of age 59½,
• plan termination

Employer profit sharing contributions can be distributed/transferred to an IRA after a 2 year holding period has met even if the participant is under age 59 1/2. However, if the participant is over age 59 1/2 the profit sharing contributions can be distributed/transferred to an IRA at anytime.

Lastly, the rules are more relax for amounts that have been transferred into the solo 401k from other IRAs or qualified plans. These amounts can be transferred out at anytime to an IRA or another 401k.

MORE RESOURCES

SOLO 401K FAQs

SOLO 401K DO'S & DON'TS