Steps to Close Your Solo 401k Plan:
- Step 1: Move your money by either rolling it over into another retirement plan or taking a distribution.
- Step 2: Notify your Solo 401k plan provider that you want to close your account.
- Step 3: File Form 5500-EZ with the IRS to officially report the plan termination.
Thinking of closing your Solo 401k plan with another provider? Transfer your Solo 401k plan to Carry first, and you can rollover your Solo 401k funds into other retirement plans (like an IRA or self-directed IRA).
Thinking about closing your Solo 401k account?
Whether you’ve hired employees or are switching to a different retirement plan, closing out your account involves a few important steps.
A Solo 401k is designed for self-employed individuals with no employees (excluding your spouse). If you hire someone, especially part-time employees who are at least age 21 and have worked more than 500 hours per year for two straight years, you’re generally no longer eligible to contribute.
In that case, you might need to close the plan and roll your funds into another retirement account. Here’s how to handle that process, step by step.

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GET STARTEDSolo 401(k) eligibility and contribution limits depend on IRS rules. Carry does not provide tax advice, consult a tax advisor. Carry Advisors LLC, an SEC-registered investment adviser, provides investment advisory services for discretionary and non-discretionary accounts (e.g., Solo 401(k), IRA, taxable brokerage accounts). Bank and trust accounts are not advised by Carry Advisors. Brokerage accounts are introduced by Global Carry LLC and carried by DriveWealth LLC, both members FINRA/SIPC. Advisory fees may apply and additional disclosures are described in our Form ADV and CRS.
Step 1: Withdraw Funds and Assets from Your Solo 401k
There are two ways to withdraw all your funds and assets from a Solo 401k:
✅ Distribution: Take a withdrawal from your account, which may trigger taxes and penalties.
✅ Rollover: Transfer your assets into another retirement plan that you qualify for.
Option 1: Take a Distribution
A distribution may not be ideal, especially if you’re under 59 ½ years of age. If you withdraw funds early, you’ll typically owe a 10 percent early withdrawal penalty and income taxes.
✏️ Hypothetical Example: Let’s say you have $500,000 in your Solo 401k and decide to take a full distribution before age 59½. You’d likely owe a 10 percent early withdrawal penalty ($50,000), plus income taxes based on your tax bracket. This could push you into a higher bracket and reduce your total balance significantly.
If you’re over age 59½, you typically won’t face the 10 percent early withdrawal penalty on Solo 401k distributions. However, if you’re taking funds from a pre-tax Solo 401k, you’ll still owe ordinary income taxes.
Withdrawals from a Roth Solo 401k may be tax-free if the distribution is considered qualified. This generally means you’re over age 59½ and the account has been open for at least five years.
📝 Important Note: You would need to report the distribution through Form 1099-R before moving to the next step.
Option 2: Rollover to Another Retirement Plan
A commonly chosen option is to rollover your Solo 401k assets into another retirement plan. Remember that the type of account you choose matters:
- Rolling over pre-tax to pre-tax: If you move pre-tax Solo 401k funds into another pre-tax account (like a Traditional IRA or SEP IRA), it typically doesn’t trigger taxes.
- Rolling over pre-tax to Roth: Moving pre-tax Solo 401k funds into a Roth account (like a Roth IRA) is treated as a Roth conversion. This means you’ll owe income taxes on the converted amount for the year of the rollover.
- Rolling over both pre-tax and Roth portions: If you have both a pre-tax Solo 401k and a Roth Solo 401k, you can roll the pre-tax portion into a Traditional IRA or SEP IRA, and the Roth portion into a Roth IRA. In this case, no taxes would be triggered—you’re simply moving assets between accounts with the same tax treatment.
When you complete your rollover, you may also need to file Form 1099-R to report the transaction to the IRS.
Step 2: Notify Your Plan Provider That You’re Closing Your Solo 401k
In this step, your Solo 401k plan provider will mark your plan as inactive, ask you to sign a cancellation agreement, and may assist you with filing Form 5500-EZ.
In some cases, it’s helpful to let your provider know about your plans to close the Solo 401k before withdrawing funds. While this isn’t required, doing so may help the distribution or rollover process smoother.
Step 3: File Form 5500-EZ
If you’ve had a Solo 401k with more than $250,000 in assets, you may already be familiar with Form 5500-EZ. You’re required to file it annually if your plan exceeds that amount.
If you’re closing your Solo 401k, you’re still required to file Form 5500-EZ, even if the account holds less than $250,000. This is the final step in shutting down your plan.You must file Form 5500-EZ by the last day of the seventh month after the plan year ends in which the plan was terminated. For example, if your plan operates on a calendar year, the deadline is July 31 of the following year.
Wrapping up
Closing a Solo 401k typically involves a few clear steps, but it’s important to follow IRS rules carefully. The process generally includes withdrawing your funds, notifying your plan provider, and filing a final Form 5500-EZ with the IRS.
Want to close your Solo 401k? We can guide you through the process. If you have a Carry subscription, you can reach out to us using the messaging feature at the bottom right of your screen when logged in, and we’d be happy to point you in the right direction.
📌 Also read: How To Open a Solo 401k Plan
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