Rollover SIMPLE IRA to Solo 401k Rules

While the Self-Directed Solo 401k is quite popular because it allows for higher contributions than other plans such as the SIMPLE IRA, owner-only business owners who are currently participating in a SIMPLE IRA and are considering rolling over or transferring their SIMPLE IRA to a Self-Directed Solo 401k (a/k/a Solo 401k, Individual 401k) with checkbook control to gain access to Solo 401k loan and/or make alternative investment purchases in assets such as real estate, tax liens, precious metals, private company shares, promissory notes, foreign currency, etc., you first need to consider the following SIMLE IRA rollover/transfer rules before continuing to open Solo 401k. 

Important SIMPLE IRA Transfer/Rollover to Solo 401k Rules

To qualify as a tax-free direct rollover, SIMPLE IRA assets may be rolled over into an employer sponsored plan such as a Solo 401k after two years of participation in the employer’s SIMPLE IRA plan. The 2-year window starts on the first day the SIMPLE IRA contribution was made. This doesn’t mean that you cannot open Solo 401k, just that you cannot rollover the existing SIMPLE IRA assets to Solo 401k until the 2 year waiting period has passed. Therefore, you have the option to participate in two retirement plans for the self-employed simultaneously, but still need to adhere to the rollover and contribution rules. For more information regarding participating in a SIMPLE IRA and qualified plan such as Solo 401k plan at the same time See http://www.irs.gov/pub/irs-drop/not98-4.pdf  [Q. b-3 “Can an employer make contributions under a SIMPLE IRA plan for a calendar year if it maintains another qualified plan?” ]

EXAMPLE of 2 year waiting period of Rollover of SIMPLE IRA to Solo 401k:

Jane Long is self-employed and maintains a SIMPLE IRA plan. Jane made her first contribution to her SIMPLE IRA on March 5, 2010. Jane is restricted by the 2 year rule from transferring her SIMPLE IRA funds/assets prior to March 5, 2012 into a Solo 401k because the two-year waiting period would not be satisfied. However, Jane can still open Solo 401k with a Solo 401k provider that offers Solo 401k checkbook control and make ongoing contributions to just her Solo 401k. Jane also has the option to contribute to both the SIMPLE IRA and Solo 401k but may not exceed the annual contribution limits between both plans. See http://www.irs.gov/pub/irs-drop/not98-4.pdf  

Lastly, it’s important to note that assets in employer-sponsored plans such as Solo 401k are not allowed to be rolled over to SIMPLE IRAs per IRS regulations.