Correcting a Solo 401k Prohibited Transaction
If you are a disqualified person who participated in a Solo 401k prohibited transaction, you can avoid the 100% tax by correcting the transaction as soon as possible. Correcting the transaction means undoing it as much as you can without putting the Solo 401k plan in a worse financial position than if you had acted under the highest fiduciary standards.
Correction period. If the prohibited transaction is not corrected during the taxable period, you usually have an additional 90 days after the day the IRS mails a notice of deficiency for the 100% tax to correct the transaction. This correction period (the taxable period plus the 90 days) can be extended if either of the following occurs.
Visit Plan Asset Rule to learn how Solo 401k prohibited transaction rules apply to equity investments.
Correction period. If the prohibited transaction is not corrected during the taxable period, you usually have an additional 90 days after the day the IRS mails a notice of deficiency for the 100% tax to correct the transaction. This correction period (the taxable period plus the 90 days) can be extended if either of the following occurs.
- The IRS grants reasonable time needed to correct the transaction.
- You petition the Tax Court
Visit Plan Asset Rule to learn how Solo 401k prohibited transaction rules apply to equity investments.