Terminating Solo 401k

[Guest KRS401k]

An owner wants to terminate his solo 401k and roll it over to an IRA because he has closed that business.

He has another business that is about a year old with a different EIN and wants to start a solo 401k under that one.

Is there any weird rules that would prevent this from being that simple after properly terminating the first plan?

[Kevin C]

From your post, I gather he is 100% owner of both businesses. Yes, there is a rule that complicates and may prevent what you want to do.

See

1.401(k)-1(d)(

4)Rules applicable to distributions upon plan termination

(i)No alternative defined contribution plan.—

A distribution may not be made under paragraph (d)(1)(iii) of this section if the employer establishes or maintains an alternative defined contribution plan. For purposes of the preceding sentence, the definition of the term "employer" contained in §1.401(k)-6 is applied as of the date of plan termination, and a plan is an alternative defined contribution plan only if it is a defined contribution plan that exists at any time during the period beginning on the date of plan termination and ending 12 months after distribution of all assets from the terminated plan. However, if at all times during the 24-month period beginning 12 months before the date of plan termination, fewer than 2% of the employees who were eligible under the defined contribution plan that includes the cash or deferred arrangement as of the date of plan termination are eligible under the other defined contribution plan, the other plan is not an alternative defined contribution plan. In addition, a defined contribution plan is not treated as an alternative defined contribution plan if it is an employee stock ownership plan as defined in section 4975(e)(7) or 409(a), a simplified employee pension as defined in section 408(k), a SIMPLE IRA plan as defined in section 408(p), a plan or contract that satisfies the requirements of section 403(b), or a plan that is described in section 457(b) or (f).

What kind of timing does the owner have in mind for starting the new plan?

[mbozek]

Instead of terminating the 401k plan why cant the owner have the new business adopt the 401k plan so that both employers will be plan sponsors? This way the 401k plan would be ongoing for both employers.