QUESTION: I wanted to open a solo 401k, and would roll an old company 401K to the solo 40k. However, one potential hurdle is that I have an outstanding loan on my old company 401K plan. Am I required to pay that back prior to rolling the balance to a solo 401k? Or can the loan be rolled as well? Is that a question for my company plan administrator, or is it a matter of IRS regulations?
Thanks for your help,
John B.
ANSWER: While the IRS 401k rules permit the transfer of outstanding 401k participant loans to a 401k including a solo 401k, it is ultimately up to the employer sponsoring the 401k plan as to whether or not the outstanding 401k loan can be transferred. Keep in mind that if the loan is not in a default there is a higher chance that they will allow you to transfer out the 401k to loan to another 401k. It has been my experience that most employers will require the participant to pay off the outstanding loan before processing the outgoing direct rollover or transfer to a solo 401k or it will be treated as a distribution by reporting it on form 1099R under a code 7 or 1 depending on the participant’s age.
Thanks for your help,
John B.
ANSWER: While the IRS 401k rules permit the transfer of outstanding 401k participant loans to a 401k including a solo 401k, it is ultimately up to the employer sponsoring the 401k plan as to whether or not the outstanding 401k loan can be transferred. Keep in mind that if the loan is not in a default there is a higher chance that they will allow you to transfer out the 401k to loan to another 401k. It has been my experience that most employers will require the participant to pay off the outstanding loan before processing the outgoing direct rollover or transfer to a solo 401k or it will be treated as a distribution by reporting it on form 1099R under a code 7 or 1 depending on the participant’s age.
RSS Feed