If you’re self-employed or run a business with no employees other than you and your spouse, a solo 401(k) can be one of the most powerful retirement tools available. It offers generous contribution limits, the option of Roth savings, and with a self-directed plan, the ability to invest in assets you know, like real estate and private lending.
But as you approach your 70s, there’s one rule that surprises many business owners. If you’ve heard that people who are still working can delay their 401(k) RMDs, that rule probably doesn’t apply to you. Here’s what to know so you can plan ahead.
When Do Solo 401(k) RMDs Start?
Required minimum distributions generally begin at age 73 for people born between 1951 and 1959, and at age 75 for people born in 1960 or later. (If you were born in 1959, there’s a small technical ambiguity in the law, but the IRS’s current position is that your RMD age is 73.)
Your first RMD is due by April 1 of the year after you reach RMD age. After that, each year’s RMD is due by December 31. If you use the April 1 extension for your first RMD, keep in mind that you’ll take two distributions in that same calendar year, which can increase your taxable income.
The “Still Working” Exception, and Why It Usually Doesn’t Apply
Many employer plans include a helpful rule: if you’re still working for the company sponsoring the plan, you can delay your 401(k) RMDs until April 1 of the year after you retire.
It sounds like a perfect fit for business owners who have no plans to slow down. The catch is that the still working exception doesn’t apply to anyone who owns more than 5% of the business.
Since a solo 401(k) is designed for business owners, nearly every solo 401(k) participant is a more than 5% owner. That means your RMDs start on the standard schedule, whether you’re working full time, part time, or not at all.
Here’s how that can play out. Imagine two friends who both turn 73 this year and both plan to keep working. One is a senior manager at a large company with no ownership stake, so she may be able to delay RMDs from her employer’s 401(k) until she retires. The other runs her own consulting business with a solo 401(k), so her RMDs start on schedule, even though she’s working just as hard.
Ownership can include family members. For this rule, the IRS may count shares owned by your spouse, children, grandchildren, or parents as if you own them too. So even if a family member holds most of the business, you could still be treated as a more than 5% owner.
How Solo 401(k) RMDs Are Calculated
Your RMD is calculated the same way as for an IRA. Take your plan’s fair market value as of December 31 of the prior year and divide it by your life expectancy factor from the IRS Uniform Lifetime Table.
If your solo 401(k) holds real estate, notes, or other alternative assets, accurate year-end valuations are essential. Your RMD depends on that number, and if your plan’s assets exceed $250,000, the value is also reported on the plan’s annual Form 5500-EZ filing.
Roth vs. Pre-Tax Money in Your Solo 401(k)
Many solo 401(k)s hold both pre-tax and Roth dollars. Since 2024, Roth accounts in 401(k) plans are no longer subject to RMDs during the owner’s lifetime.
That means only the pre-tax portion of your solo 401(k) is used to calculate your RMD. Your Roth dollars can stay invested.
Solo 401(k)s Don’t Aggregate With IRAs
If you also have traditional IRAs, you might be used to taking the combined RMD from whichever IRA is most convenient. That flexibility doesn’t extend to your solo 401(k).
Your solo 401(k) RMD must come from your solo 401(k). You can’t take extra from an IRA to cover it, or use your solo 401(k) to satisfy your IRA RMDs. If you have more than one 401(k), each plan generally needs to satisfy its own RMD too.
This matters most when your solo 401(k) is mostly illiquid. If the plan owns a property and very little cash, you’ll want a plan for covering the RMD from within the 401(k) itself, such as building a cash reserve from rental income or note payments. Depending on your plan document, an in-kind distribution may also be an option.
Can You Keep Contributing After RMDs Start?
Yes. As long as you have self-employment income from your business, you can generally continue making contributions to your solo 401(k), even after RMDs begin. The two work independently. Just note that RMD amounts themselves can’t be contributed or rolled back into the plan.
Should You Roll Your Solo 401(k) Into an IRA?
Some business owners who are winding down their business consider rolling their solo 401(k) into an IRA. Doing so can simplify RMDs, since your IRA RMDs could then be combined.
If you’re considering it, timing matters. In a year when you’re subject to RMDs, the RMD must be taken from your solo 401(k) before the rest of the balance is rolled over. It’s also worth weighing what you’d give up, such as the ability to keep contributing if you’re still earning income. Talk with your tax advisor about which structure fits your plans.
A Simple Checklist for Business Owners
- Confirm your RMD age based on your birth year.
- Assume the still working exception doesn’t apply to you, unless your tax advisor confirms otherwise.
- Keep year-end valuations current for any alternative assets in your plan.
- Separate your pre-tax and Roth balances so your RMD is calculated on the right amount.
- Plan for cash inside the solo 401(k) to cover each year’s RMD.
- Coordinate with your CPA on how RMDs fit alongside ongoing contributions.
How MidAtlantic IRA Can Help
Our team works with self-directed solo 401(k) owners every day, and we’re happy to walk you through how MidAtlantic IRA supports solo 401(k) RMDs, such as calculations, distribution paperwork, and tax reporting.
Because RMD rules for business owners can depend on your ownership, family situation, and plan document, we always recommend reviewing your plan with your CPA or tax advisor. MidAtlantic IRA doesn’t provide tax, legal, or investment advice, but we’re glad to help you understand how the process works.
Own a business and approaching RMD age? Schedule a call with our team and let’s make sure you’re ready.