Items to consider before processing rollover from SIMPLE IRA to: Solo 401k | Solo K | Individual 401k | Individual K | Single 401k | Self-Directed Solo 401k | Self-Directed 401k | Owner only 401k | Self-employed 401k

Since the inception of the Solo 401k (often referred by other names such as owner only 401k, self-employed 401k or self-directed 401k) in 2002 with the passage of EGTRRA, owner-only businesses have consistently switched from participating in SIMPLE IRA to Solo 401k.

However one should consider the following before making the switch from SIMPLE IRA to Solo 401k to stay in compliance with the regulations:

Cease making contributions to SIMPLE IRA

If you currently participant in a SIMPLE IRA, not only must you first cease making contributions to it but also not have made contributions to it in the year that you would like to rollover the SIMPLE IRA to the new Solo 401k. In addition, you cannot make future contributions to the SIMPLE IRA while the solo 401k is active.

ILLUSTRATION:

Daniel has been contributing to her SIMPLE IRA for the last four years, including this year, but recently read how a Solo 401k or Self-Directed 401k will allow her to put way more for retirement. However, because Daniel contributed to her SIMPLE IRA this year, she must wait until next year to transfer her SIMPLE IRA to a Solo 401k, provided she establishes the Solo 401k by December 31 of this year.

2 Year Period to avoid 25% penalty

Before you proceed with rolling over your SIMPLE IRA to a Solo 401k, first confirm that it has been at least two years since you first contributed to it. Reason being, you will be hit with a 25% distribution penalty on the amount of the rollover if you rollover before the two year period has expired.