Termination of Employment for Self-employed Owners

[Alonzo Church]

When does a self-employed individual truly have a termination of employment allowing him to take a distribution from his qualified plan? Is it:

1. When he moves from one type of business to another? (So he's effectively terminated is current trade or business)

2. When he runs the same type of business, but he significantly relocates it?

As an example, suppose a real estate agent has moved from one agency to another. Is the trade or business -- my real-estate business with company x? Or is it -- my real estate business?

I am looking for some general thoughts and experiences. I realize we are likely in the IRS world of facts and circumstances.

[Larry Starr]

5 hours ago, Alonzo Church said:

When does a self-employed individual truly have a termination of employment allowing him to take a distribution from his qualified plan? Is it:

1. When he moves from one type of business to another? (So he's effectively terminated is current trade or business)

2. When he runs the same type of business, but he significantly relocates it?

As an example, suppose a real estate agent has moved from one agency to another. Is the trade or business -- my real-estate business with company x? Or is it -- my real estate business?

I am looking for some general thoughts and experiences. I realize we are likely in the IRS world of facts and circumstances.

A sole proprietor NEVER terminates.  A sole prop is an individual, and until he dies, the sole proprietorship will exist.

So the answers to your stated questions: 1) No.  2) No. 

A RE agent is a sole prop (unless his business is incorporated).  Whether he moves from one agency to another OR NOT, he is still the same sole prop.  Hopefully you got my message that he never terminates.  Even if he stops selling real estate, he is still a sole prop (just not making any money).

This is not a facts and circumstances issue.

So now, why don't you tell us the real issue; WHY are you asking this?  How old is your sole prop?  Does he have any employees?  Provide as much detail as possible as it will no doubt be important to know.

 

[Alonzo Church]

Let's stipulate that the self-employed individual is under 59-1/2. In my case, we have an owner-employee who has gone back into corporate employment, and would like to find a way to roll his money into his corporate employer's plan, rather than keep it in his self-employed plan (he doesn't want to pay the fees). He doesn't anticipate having self-employment income in 2020 or future years.

[Kac1214]

Terminate the Plan, this will cause his trigging event to allow a distribution

[Larry Starr]

2 hours ago, Alonzo Church said:

Let's stipulate that the self-employed individual is under 59-1/2. In my case, we have an owner-employee who has gone back into corporate employment, and would like to find a way to roll his money into his corporate employer's plan, rather than keep it in his self-employed plan (he doesn't want to pay the fees). He doesn't anticipate having self-employment income in 2020 or future years.

Thank you for the real question.  Terminate the plan officially; that allows a distribution to be made which he can then do as a trustee to trustee (custodian) transfer to an IRA or to his new employer plan, IF THE NEW EMPLOYER PLAN ACCEPTS ROLLOVERS (not all do).

Is there a real consulting/retirement firm handling his plan?  They should know this answer.  

[Alonzo Church]

They (and I) know this answer. The guy just wanted to take his money without signing any more paperwork or paying any more fees.