Step 1: Complete a Distribution Request form
Before issuing any funds, complete a Distribution Request form. This is included in your Self-Directed Plans Solo 401(k) document package. The form establishes the purpose, amount, and participant account from which the distribution is drawn. Retain a copy for your records, as it will be needed for tax reporting.
Step 2: Issue the funds
Write a check or initiate a wire or ACH transfer from the plan to your personal account. If your plan includes multiple participant accounts (for example, pre-tax and Roth, or separate accounts for you and a participating spouse), record which account or accounts the distribution came from and update your plan ledger accordingly.
Step 3: Handle withholding
A 20% federal withholding is required on non-qualified distributions from a Solo 401(k). This withholding must be transmitted to the IRS electronically through the Electronic Federal Tax Payment System (EFTPS) by the 15th of the month following the distribution. If you do not already have an EFTPS account for your plan, allow at least two weeks for enrollment, as the IRS mails a PIN required to activate the account.
Roth distributions that qualify as tax-free are not subject to the 20% withholding requirement.
Step 4: Report the distribution
Three reporting obligations follow a Solo 401(k) distribution:
- Form 945 (Annual Return of Withheld Federal Income Tax) is due by January 31 of the year following the distribution.
- Form 1099-R must be filed with the IRS by February 28 of the year following the distribution. As plan administrator, you are responsible for producing this form.
- The distribution is also reported on your personal tax return using the 1099-R information.
A note on timing for RMDs
If you are taking a distribution to satisfy a Required Minimum Distribution, it must be completed by December 31. Begin the process no later than early December to allow sufficient time for all steps.