Looking to open a Solo 401k plan? Get started today – The Carry Solo 401k Plan is a featured-packed self-directed account that lets you invest in both Traditional and alternative assets, take out a loan, or do a mega backdoor Roth conversion with a few clicks.

The Solo 401k has strict rules for withdrawals, and breaking them can result in steep  penalties. That said, the withdrawal guidelines are generally straightforward, provided you stay within the limits. 

In certain emergencies, some Solo 401k plans may allow hardship withdrawals, which could give you early access without penalties. Other plans may allow you to borrow from your account through a Solo 401k loan, which typically avoids a taxable distribution. 

Here’s what you need to know about how Solo 401k withdrawals work, including the rules, taxes, and common exceptions.

How Solo 401k Withdrawals Work

As with any other retirement account, you must be at least age 59½ before making withdrawals from your Solo 401k.

But age isn’t the only rule. Depending on the type of account you have and how you withdraw, there are a few more important requirements and exceptions to understand.

How the Roth Solo 401k 5-Year Rule Works

Roth Solo 401k accounts follow an additional rule: the account must be at least five years old before you can take qualified, penalty-free withdrawals. The five-year rule starts when you make your first contribution.

✏️ Hypothetical Example: If you open a Solo 401k at the age of 57 and make your first contributions to both the Traditional Solo 401k and Roth Solo 401k accounts that year:

✅ You can start taking withdrawals from your Traditional Solo 401k at age 59½.

✅ You can take withdrawals from your Roth Solo 401k at age 62, assuming it’s been at least 5 years since your first contribution.

Each Roth conversion, including a Backdoor Roth IRA or Mega Backdoor Roth, triggers its own five-year holding period. Withdrawing converted funds early could result in a 10 percent penalty, even if you meet the age requirement.

How Are Solo 401k Withdrawals Taxed?

If you’re taking qualified distributions after age 59½, the tax treatment depends on the type of contributions: Traditional (pre-tax) or Roth (after-tax). 

‍In retirement, you may be able to choose which portion to withdraw from, but it’s important to understand how this decision could impact your taxes. 

✅ Contributions to a Roth Solo 401k cannot be withdrawn tax-free at any time. Roth Solo 401k withdrawals must meet both the 59½ age and 5-year rule to be considered qualified and tax-free.

✅ Withdrawals from your Traditional Solo 401k are taxed based on your tax bracket and the rates in effect at the time.

What Happens If You Withdraw Early?

Taking money out of your Solo 401k before age 59½ usually comes at a cost. So before you make an early withdrawal, it’s important to understand how the penalties and taxes can affect your savings.

Understanding the 10% Early Withdrawal Penalty

Any withdrawals made from your Solo 401k before age 59½ will be subject to a 10% early-distribution penalty plus ordinary income tax on the amount you withdraw.

✏️ Hypothetical Example: Let’s say that you’re 35 years old and made no other income this year due to financial hardship. To stay afloat, you decide to withdraw $10,000 early from your Solo 401k. This withdrawal is treated as ordinary income.

✅ Since your total income is below the standard deduction ($15,000 for single filers in 2025), you won’t owe any federal income tax on the withdrawal.

❌ However, because you’re under age 59½, the IRS will impose a 10% early withdrawal penalty — which amounts to $1,000 on the $10,000.

In total, you would owe a 10 percent early withdrawal penalty which is $1,000. Since you owe no income tax, you would keep $9,000 from the $10,000 withdrawal.

How Early Withdrawals Could Affect Your Retirement Savings

Fees and taxes are just one consideration when it comes to early Solo 401k withdrawals. Taking money out too soon can also reduce your long-term retirement growth.

In the previous example, you’re not just losing 10% on the $10,000 withdrawal. You’re also missing out on the potential growth that money could have earned if it stayed invested in your Solo 401k account.

Even a relatively small withdrawal today could significantly impact your total retirement savings years down the line, especially with compounding growth.

Exceptions to the 10% Tax Penalty

Some 401k plans may allow for a 401k hardship withdrawal in extreme situations such as:

Note that not all cases may be eligible, and your plan provider will generally assess each application on a case-by-case basis.

📌 Also read: IRA & 401k Hardship Withdrawals: Eligible Reasons and Tax Implications

Can You Borrow From a Solo 401k?

If your plan allows it, you can take a loan from your Solo 401k. It’s not treated as an early distribution, so it typically won’t trigger taxes or penalties.

You may borrow up to 50% of your account balance, with a maximum loan limit of $50,000. While there’s no early withdrawal penalty for taking a loan, you’ll still have to pay interest.

The interest rate is usually the Prime Rate plus one or two percent, as set by your plan provider. The interest you pay goes back into your Solo 401k account.

You’ll generally have 5 years to repay a Solo 401k loan. Some plans may allow a longer repayment period if the loan is used to purchase your primary residence, depending on your provider and plan terms.

What If You Inherit a Solo 401k?

If you inherit a Solo 401k as a beneficiary, the 10 percent early withdrawal penalty does not apply. There’s no age restriction, so you can begin taking distributions at any time. However, taxes may still apply depending on the type of account you inherit.

Inherited Roth Solo 401k withdrawals are generally tax-free if the original account met the 5-year holding requirement. Traditional Solo 401k withdrawals are typically taxed as ordinary income based on your tax bracket.

Most non-spouse beneficiaries are required to fully withdraw the inherited account within 10 years of the original owner’s death. This rule applies whether you take a lump sum or spread withdrawals over time.

Solo 401k Withdrawal Age Rules

You can’t keep funds in your Solo 401k growing tax-advantaged forever—at least not in all cases. The IRS requires required minimum distributions (RMDs) to begin at age 73, but only for Traditional Solo 401k accounts.

Roth Solo 401k accounts are exempt from RMDs during the original account owner’s lifetime, starting in 2024. That means you can leave your Roth funds invested for as long as you want, with no forced withdrawals.

📝 Note: If a Roth Solo 401k is inherited, RMDs will apply based on beneficiary rules.

How Much Are You Required to Withdraw?

The Solo 401k RMD is not the same for everybody. The amount you’re required to withdraw depends on your age and your account balance as of December 31 of the previous year. The IRS calculates your RMD by dividing that balance by a life expectancy factor based on your age.

When Do You Need to Withdraw the Money?

Your first RMD must be taken by April 1 of the year after you turn 73. After that, annual RMDs are due by December 31 each year.

What Happens If You Don’t Take It Out on Time?

Missing your RMD deadline may result in a 25% penalty on the amount you failed to withdraw. If corrected within two years, the penalty can be reduced to 10%.

To avoid penalties, take your RMDs on time and keep accurate records.

📌 You can learn more about the Solo 401k RMD in this guide.

When Can You Start Withdrawing Penalty-Free?

You can begin taking qualified withdrawals from your Traditional Solo 401k once you reach age 59½. Withdrawals before that are considered early distributions and are typically subject to a 10 percent penalty plus income tax.

To make qualified withdrawals from your Roth Solo 401k, you must be at least age 59½ and have held the account for at least five years.

Wrapping It Up

Solo 401k withdrawals come with strict rules—but also flexibility if used correctly.

Understanding when and how to withdraw can help you avoid penalties and preserve more of your retirement savings. If in doubt, consider consulting a tax advisor.

The Carry Solo 401k Plan is a fully managed Solo 401k that keeps you in compliance each year. Learn more about it here.

📌 Curious about initiating a withdrawal from your Carry Solo 401k? Click here to learn how it works.

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