- Does a solo 401k have an RMD? Yes. Once you reach the age of 73, the IRS requires that you start taking withdrawals from your solo 401k account.
- When is the RMD deadline for a solo 401k? For your first RMD, you get until April 1, of the year after you turn 73. For all future RMDs, your deadline is December 31 of each year. If you turned 73 years old this year, you have until April 1, 2024. If you’re over 73, you have until December 31, 2023.
- What is the RMD penalty? If you fail to take your RMD by the deadline, you’ll be taxed 50% on the amount you were required to withdraw.
- How do I calculate my RMD? The IRS takes your account balance from December 31 of last year, and divides it by your life expectancy factor. If the beneficiary of your solo 401k is your spouse, who is at least 10 years younger than you, the calculations get very complex. For everyone else, the life expectancy chart is shared below.
Most people will start to withdraw from their solo 401k plans when they reach the eligible withdrawal age of 59½. But some people may not immediately need to take out any money and instead prefer to leave the money in their solo 401k for as long as they can.
Unfortunately, the IRS doesn’t allow you to keep compounding your money tax-free in your solo 401k account forever.
The solo 401k has an RMD rule that starts when you turn 73 years of age.
What is an RMD? RMD stands for required minimum distribution, and almost all retirement plans in the U.S. have an RMD rule. The only retirement plan that doesn’t have RMD rules is the Roth IRA.
Basically, the IRS forces you to start making withdrawals from your retirement account once you reach a certain age, and you must withdraw the required amount each year until your account is eventually emptied. If you fail to do so, or you miss your deadline, there are very steep penalties (explained below).
When do I need to start taking RMDs from my solo 401k?
You must start taking RMDs from your solo 401k when you turn 73 years of age.
For the first year, you’re given a little bit more. You get until April 1st, the year after you turn 73 years old to take your RMD. After that, all future RMDs must be taken by December 31, every year until your account is fully withdrawn.
RMD deadlines for 2023
- If you’re turning 73 years old in 2023, you’ll have until April 1, 2024 to take your first RMD.
- If you’re already over the age of 73, you’ll need to take your next RMD by December 31, 2023.
What if I’m not retired yet?
401k retirement accounts typically offer a special exemption from the RMD rule. Even if you’re over the age of 73, you are not required to take distributions from your 401k IF you’re still working at the company.
However, this exemption only applies for people who DO NOT own at least 5% of the company. Since you own your business, this exemption does not apply to the solo 401k.
Penalties for not taking RMDs
If you fail to take your RMD, or you miss the deadline and you’re late, the penalties are severe. If you miss the deadline, you’ll have to pay a 50% tax on the amount you were supposed to withdraw.
For example, if you were required to take an RMD of $5,000 this year but you missed the deadline, you need to hand over $2,500 of it to the IRS.
Can the penalty be waived?
Fortunately, yes. Missed RMD payments need to be reported to the IRS through Form 5329. The good news is, if you missed it by accident or due to a reasonable error, the IRS can waive the penalty.
You’ll still need to fill out the same form, Form 5329, but you’ll also have to attach a letter explaining why you missed it, and what steps you’ve taken to fix the mistake.
Follow the instructions for filling out a waiver request on page 8 of this document under “Waiver of Tax for reasonable cause.” The IRS will review your case and notify you of their decision.
How RMD amounts are calculated
The exact amount of RMD you must take each year uses a complex calculation, and it’s different for everybody. The IRS takes your solo 401k account balance as of December 31, of the preceding year, and divides it your life expectancy factor.
What’s a life expectancy factor?
The IRS used to just divide it by your age, but the calculations have changed. Every age has a different life expectancy factor. And to make things even more complicating, the numbers are different if you have a spouse that acts as your solo 401k account’s sole beneficiary, and is at least 10 years younger than you.
You can find your life expectancy factor using the RMD table below.
Solo 401k RMD Table for 2023
|Age||Life Expectancy Factor||Percentage of Account Balance|
How do I take my RMD if I don’t have any cash in the account?
This is a common question. If all the funds in your solo 401k are invested in assets, and you don’t have any liquid cash to take your RMD, you’ll have to sell enough assets in order to take the appropriate amount of RMD.
Can I withdraw more than the RMD?
Yes, it’s completely up to you. However, just keep in mind that the excess amount will not carry over to next year’s RMD.
Do Roth solo 401k accounts also have an RMD?
Yes. Since the only retirement account that doesn’t have an RMD is a Roth IRA, some people mistakenly assume that the Roth solo 401k doesn’t have one either.
Unfortunately, it does. The good news is, you won’t have to pay any taxes on withdrawals made from your Roth solo 401k since you already paid taxes on your contributions.
What if I have more than one retirement account?
If you have multiple retirement plans, you must treat each one separately. No aggregation allowed.
Each retirement plan has their own RMD rules.
You must calculate the deadlines, and how much you need to take in RMD, for each separate retirement plan you have. Taking an RMD from one retirement plan doesn’t mean you’re exempt from taking an RMD from another. They are completely separate.
The Carry Solo 401k Plan comes fully managed and can help with RMD calculations, tax filings, and account compliance. Learn more here.