Saving in a Solo 401k offers self-employed individuals both high contribution limits and flexible tax planning. But taking money out of the plan comes with its own set of rules. Without proper timing or strategy, you could trigger taxes, penalties, or unnecessary paperwork.
This guide breaks down eight common ways to access your Solo 401k funds. From standard withdrawals at age 59½ to early distribution exceptions, loans, rollovers, RMDs, and Roth withdrawals — we’ll cover what each method involves and how to use it wisely.
The Solo 401k Handbook
Learn how self-employed professionals can contribute more, reduce taxes,* and invest with greater control– using one of the most powerful retirement plans available. Download the free guide, updated for 2025.
**Solo 401(k) eligibility and contribution limits depend on IRS rules. Tax benefits depend on your individual situation. Not all business owners or side-income earners qualify. 2025 limits ($70,000 or $77,500 with catch-up) depend on income and plan design. Plan administrators—not Carry—are responsible for compliance. Carry does not provide tax advice, consult a tax advisor.
1. Withdrawals at Age 59½
Once you turn age 59½, you can start taking distributions from your Solo 401k without the 10 percent early withdrawal penalty. While your provider sets the process for requesting a withdrawal, the tax rules follow federal guidelines.
Tax Rules for Traditional vs Roth Solo 401k
| Account Type | What’s Taxed After 59½? | Key Rule |
| Traditional Solo 401k | The full amount is taxed as ordinary income. No 10 percent penalty applies. | See 401k General Distribution Rules |
| Roth Solo 401k | Tax-free if (1) you’re at least age 59½ and (2) the Roth sub-account has been open for five taxable years. | See Roth Accounts in Retirement Plans |
📝 Important Notes:
- Reaching age 59½ removes the early withdrawal penalty, but pre-tax withdrawals from a traditional Solo 401k are still subject to income tax.
- Check the start date of any Roth sub-account. A Roth Solo 401k created through an in-plan conversion in 2023 won’t be fully qualified until January 1, 2028, even if you’re over age 59½.
2. Early Withdrawals Before Age 59½
You can take money out of your Solo 401k before age 59½, but doing so usually comes with added taxes and penalties. The IRS applies strict rules, and only a few exceptions qualify for penalty relief.
10 Percent Penalty and Tax Rules
Early distributions from a Solo 401k are generally subject to:
- 10 percent penalty: This applies if you withdraw funds before age 59½, unless you meet a specific exception.
- Regular income tax: The distribution is taxed as ordinary income.
- Taxable portion only: The penalty applies only to the portion that must be included in gross income, typically, pre-tax contributions and earnings. For Roth Solo 401k accounts, earnings are penalized if the 5-year rule hasn’t been met.
- 20 percent withholding: If the distribution is paid directly to you, your provider must withhold 20 percent for federal taxes. You’ll also receive IRS Form 1099-R. If you qualify for an exception, you’ll report it using IRS Form 5329 when you file your tax return.
Exceptions for Medical, Disability, and Other Situations
The IRS allows early distributions without the 10 percent penalty under specific circumstances. Ordinary income tax still applies in most cases.
| Exception | Key Conditions |
| Permanent disability | You must be unable to engage in substantial gainful activity; physician certification is required. |
| Unreimbursed medical expenses | Qualified costs must exceed 7.5 percent of your adjusted gross income in the withdrawal year. |
| Terminal illness | A physician certifies a condition likely to result in death within 84 months (added under SECURE 2.0). |
| Birth or adoption | Up to $5,000, must be taken within one year of the child’s birth or adoption. |
| Domestic abuse | Up to $10,000, available for distributions within one year of the abuse (effective 2024). |
| IRS levy on the plan | Applies only to the amount the IRS seizes. |
| Series of substantially equal periodic payments (SEPP) | See next section. |
📝 Note: Your Solo 401k provider may allow hardship withdrawals for specific needs, such as avoiding foreclosure. However, hardship alone does not waive the 10 percent penalty unless one of the listed exceptions also applies.
Using SEPP (72(t)) to Avoid Penalties
The IRS allows you to avoid the early withdrawal penalty through a Series of Substantially Equal Periodic Payments (SEPP). This option is complex but can offer penalty-free income before age 59½.
Here’s how it works:
- Start at any age: SEPP is not age-restricted, but once you begin, you must stick to the payment schedule.
- Choose a method: You can use the Required Minimum Distribution (RMD) method, fixed amortization, or fixed annuity factor.
- Follow the rules: Payments must be made at least annually and continue for five years or until you turn 59½, whichever is longer.
- No changes allowed: If you stop or change the payment schedule early, the 10 percent penalty (plus interest) will apply retroactively to all past payments.
- Keep documentation: Maintain your calculations and payment records in case of an IRS audit.
3. Taking a Loan from Your Solo 401k
A Solo 401k loan lets you access funds without triggering taxes or penalties as long as you follow IRS loan rules. If you miss a payment or violate the terms, the loan is treated as a taxable distribution. If you’re under age 59½, that also means a 10 percent early withdrawal penalty.
Loan Limits, Interest Rates, and Repayment Terms
| Rule | Requirement |
| Maximum loan amount | The lesser of $50,000 or 50 percent of your vested Solo 401k balance. |
| Minimum exception | If 50 percent of your balance is less than $10,000, you may borrow up to $10,000 (if your plan allows it). |
| Interest rate | Must reflect a reasonable market rate. Most providers use Prime Rate + 1 to 2 percent. |
| Repayment schedule | At least quarterly payments of principal and interest, fully amortized over five years. Home loans may be repaid over 15 years. |
| If you default | The unpaid balance becomes a taxable distribution. A 10 percent penalty applies if you’re under age 59½. |
📝 Proceed with caution: Borrowed funds miss out on potential investment growth. If your business slows or you roll your plan to a new provider, you may have to repay the loan immediately, or face it being treated as a distribution. Consider other options before taking out a loan, and borrow only what you can realistically repay on schedule.
4. Rollovers and Plan Transfers
You can move funds from your Solo 401k into another retirement account without triggering taxes as long as you follow the IRS rollover rules. This is useful if you’re changing your business structure, joining an employer plan, or updating your investment strategy.
Rolling Over to or from an IRA
You have 60 days to complete a rollover after receiving an eligible distribution. Missing the deadline may result in taxes and a penalty if you’re under age 59½.
- Direct rollover: The check goes directly to your IRA provider — no taxes withheld.
- Indirect rollover: If the check is payable to you, your provider must withhold 20 percent. You’ll need to replace that amount to roll over the full balance.
📝 Note: Pre-tax funds go to a traditional IRA. Roth funds must go to a Roth IRA or another Roth 401k. The 5-year rule still applies for tax-free treatment.
You’ll receive Form 1099-R from your Solo 401k and Form 5498 from your IRA custodian — keep both for your records.
Transferring to a New Employer Plan
Some employer 401k plans accept rollovers from Solo 401ks, but not all. Confirm with the new plan administrator first.
A direct trustee-to-trustee transfer avoids taxes and the 20 percent withholding. Your provider will send the funds directly or issue a check payable to the new plan’s trustee.
Transferring may help consolidate accounts, lower fees, and preserve loan options not available in IRAs. If your Solo 401k balance is under $5,000, you may be required to move it.
Before any rollover, your plan must provide a 402(f) notice explaining your options and tax implications. Review it carefully before acting.
5. Required Minimum Distributions (RMDs)
Starting at age 73, Solo 401k owners must begin taking required minimum distributions (RMDs), even if they’re still running their business. Since you’re considered a 5 percent owner, you don’t qualify for the “still working” exception that applies to some employees.
RMD Age, Deadlines, and How It Works
- Starting age: RMDs begin at age 73 if you were born between 1951 and 1959. (This shifts to 75 for those born in 1960 or later, starting in 2033.)
- First-year deadline: You must take your first RMD by April 1 of the year after you turn 73.
- Annual deadline after that: Subsequent RMDs are due by December 31 each year.
- How to calculate: Divide your Solo 401k balance as of December 31 of the prior year by the IRS life expectancy factor. Use the Uniform Lifetime Table worksheet on IRS.gov.
Because Solo 401k owners are always considered more than 5 percent owners, RMDs can’t be delayed even if you’re still self-employed.
Missed RMD Penalties and Charitable Options
- Penalty for missed RMDs: The IRS charges a 25 percent tax on the amount you failed to withdraw. This drops to 10 percent if corrected within two years using Form 5329.
- Penalty waiver: File Form 5329 with a written explanation to request a reduction or waiver.
- QCD workaround: While Solo 401k funds aren’t eligible for qualified charitable distributions (QCDs), you can roll pre-tax money into a traditional IRA first. Then, use the IRA to make a direct donation, satisfying the RMD without increasing taxable income.
Make sure to plan ahead each year. Check your balance in January, use the IRS worksheet to calculate the RMD, and consider setting up automatic withdrawals to avoid penalties.
6. Distributions After Solo 401k Termination
If you decide to shut down your Solo 401k, the IRS expects the process to be completed promptly. Once the plan ends, all remaining assets must be distributed or rolled over “as soon as administratively practicable.”
This typically applies if you’ve closed your business, switched to a different type of retirement plan, or want to simplify your accounts. Before making the final payout, you must formally amend the plan to terminate, provide all participants (usually just you and your spouse, if included) with a 402(f) rollover notice, and file a final Form 5500-EZ.
When and Why You Might Close a Solo 401k
- No more self-employment income. If your business has officially ended, the IRS expects you to close the plan since a Solo 401k must be set up with the intent to continue indefinitely.
- Simplifying multiple accounts. Consolidating retirement funds into one IRA or a new workplace plan can reduce paperwork and fees.
- Compliance challenges. If your business hires full-time employees, converting to a traditional 401k may be easier than updating your Solo 401k plan to stay compliant.
Lump-Sum vs Partial Distributions
| Option | Pros | Cons | IRS Notes |
| Lump-sum cash-out | Immediate access to funds, one-time process | Entire distribution is taxable that year; 20 percent withholding applies | See IRS Topic 412 on withholding |
| Direct rollover to IRA or new plan | Tax-deferred transfer, avoids withholding | Requires coordinating a trustee-to-trustee transfer | 402(f) notice must explain this |
| Partial distributions | Spread out taxable income over multiple years | Plan still must close soon after termination | Check general distribution rules here |
7. Inherited Solo 401k Rules
If the Solo 401k account holder passes away, distribution rules depend on the type of beneficiary. The IRS sets different timelines and withdrawal methods based on whether the beneficiary is a spouse or non-spouse.
Spouse vs Non-Spouse Beneficiaries
| Beneficiary Type | Main Options | IRS Notes |
| Spouse | May roll assets into their own retirement account, delay RMDs until decedent would have turned 73, or use their own life expectancy | Spouses receive the most flexible options |
| Non-spouse | Cannot treat as their own; must follow the 10-year rule or life expectancy rules if eligible | See IRS RMD FAQs for non-spouse heirs |
10-Year Rule and Special Exceptions
- 10-year deadline: Most non-spouse beneficiaries must withdraw the entire balance by December 31 of the 10th year after the account owner’s death, regardless of whether RMDs had already started.
- Eligible Designated Beneficiaries (EDBs): Minor children, chronically ill individuals, disabled individuals, and beneficiaries less than 10 years younger than the original account holder may use life expectancy-based RMDs until they no longer qualify—after which the 10-year clock starts.
- Spousal rollovers: If a spouse rolls inherited funds into their own IRA or plan, they are treated as the new owner, which can delay RMDs until they turn 73.
8. Withdrawing from a Roth Solo 401k
Solo 401k plans can include a Roth sub-account. These accounts grow tax-free, but their withdrawal rules differ from Roth IRAs because they follow employer plan guidelines.
📌 Also Read: What Is A Roth Solo 401k? (2025 Update)
Rules for Tax-Free Roth Withdrawals
- Qualified withdrawals: A distribution is tax-free if the Roth Solo 401k account has been open for at least five taxable years and you’re at least age 59½.
- No RMDs starting 2024: Thanks to SECURE 2.0, designated Roth accounts in Solo 401k plans are exempt from required minimum distributions during the owner’s lifetime beginning in 2024.
- Non-qualified withdrawals: If you withdraw early, funds are treated in this order — contributions (tax-free), conversions (oldest first), and earnings (potentially taxable and subject to a 10 percent penalty).
Understanding In-Plan Roth Conversions
- What it means: You move pre-tax Solo 401k dollars into the Roth sub-account. The converted amount becomes taxable income in the year of conversion.
- Direct transfer only: As of SECURE 2.0, nondistributable amounts must be converted through a direct in-plan rollover. Indirect 60-day rollovers are no longer allowed.
- Separate tracking required: Converted funds must be tracked separately, and their original distribution restrictions (like the age 59½ rule) still apply.
- Why it may help: Converting when your income is lower can lock in a tax-free growth bucket for future use, especially useful now that Roth 401k accounts are exempt from RMDs.
Key Considerations and Pitfalls
Before withdrawing from your Solo 401k, make sure you understand the reporting requirements, timelines, and tax implications. Errors like missing a deadline or misreporting a rollover can lead to unnecessary taxes or penalties. Review all distribution paperwork carefully, especially your Form 1099-R.
Tax Reporting and Withholding Rules (Form 1099-R)
✅ All distributions must be reported. Any withdrawal—whether it’s a loan default, cash payout, or rollover—will be reported on IRS Form 1099-R. You’ll receive the form by January 31 of the year after the distribution. Box 1 shows the full amount taken out, Box 2a shows how much is taxable, and Box 4 shows any federal tax withheld.
✅ Cash distributions are subject to 20 percent withholding. If you take a distribution directly, the Solo 401k provider must withhold 20 percent of the taxable amount for federal income tax. You could owe more—or qualify for a refund—depending on your final tax return.
✅ Rollovers have special coding. Direct rollovers aren’t taxed, but they still show up on Form 1099-R with code “G” in Box 7. Indirect rollovers use the same code but trigger 20 percent withholding. You must replace that withheld portion from other funds within 60 days to avoid taxes on the difference.
Common Mistakes and How to Avoid Them
❌ Missing the 60-day rollover window. If you don’t complete an indirect rollover within 60 days, the full amount becomes taxable and may be hit with a 10 percent early withdrawal penalty. Consider using a direct rollover to skip this risk entirely.
❌ Forgetting to file Form 5329 for penalty waivers. If you qualify for a penalty exception (such as for medical expenses, disability, or a SEPP) you’ll need to file IRS Form 5329 and enter the correct exception code. Skipping this step could cost you 10 percent in extra tax.
❌ Overlooking RMD triggers after rollovers. Moving Solo 401k funds into an IRA can delay required minimum distributions (RMDs), but once in the IRA, new RMD rules apply. If you’re already past RMD age, roll the funds over before January 1 to avoid being hit with two years’ worth of RMDs.
❌ Making mistakes with SEPP (Rule 72(t)) withdrawals. If you stop a SEPP early or miscalculate the schedule, you’ll retroactively owe penalties on all prior payments. Always document your method and stick to the payment plan to avoid IRS scrutiny.
📌 Also Read: Top 10 Mistakes to Avoid With A Solo 401k
Final Thoughts
Taking money out of a Solo 401k involves more than just filling out a form. Each option—from standard withdrawals to loans, rollovers, and Roth conversions—comes with its own set of rules, deadlines, and tax considerations. Understanding those details can help you avoid penalties and make better use of your savings.
Before making any move, review your plan’s details and consider getting tax or legal guidance to stay compliant.
📌 Want to stay updated? Explore our other articles to learn more about managing your Solo 401k and retirement strategy:
Disclaimer:
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