Best timing to rollover my solo Roth 401k into Roth IRA when hiring employees
Title: Best timing to rollover my solo Roth 401k into Roth IRA when hiring employees 1 I've got a solo Roth 401k that I funded right at the tail end of December. Currently sitting at $22k in cash, haven't invested it yet. My situation is changing though - planning to bring on some employees around March/April for my business which means I'll need to terminate the solo 401k from what I understand. I'm wondering if it makes more sense to just rollover my Roth solo 401k into my existing Roth IRA now while it's still sitting in cash? My biggest concern is how this impacts my accounting/tax situation for this year. Is there any issue with doing the rollover before filing my taxes for last year? Also, if anyone has suggestions on what type of retirement account I should set up next, I'd really appreciate it. We're a landscaping business hitting about $230k in revenue this past year and growing pretty fast (this'll be our third year in business). Looking to hire between 2-5 people in the coming months.
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Tyrone Johnson
14 You're right that once you hire employees, you'll need to terminate the solo 401k since that plan type is specifically for owner-only businesses. Regarding timing, there's actually no tax reporting issue with rolling over your solo Roth 401k to your Roth IRA now before investing the funds. The rollover itself is a non-taxable event since you're moving Roth funds to a Roth account. The custodian will report the rollover on Form 1099-R, but you won't owe any taxes. This won't complicate your current year tax filing at all - you'll just need to report the rollover when you file next year. For your new retirement plan, since you're hiring employees, you should consider a SIMPLE IRA, a regular 401k, or a SEP IRA. Each has different contribution limits and employer responsibility requirements that would fit different business situations.
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Tyrone Johnson
•8 Thanks for the info. With a small landscape business like mine (expecting 5 employees max), would you recommend a SIMPLE IRA or regular 401k? I've heard 401ks have more paperwork but higher contribution limits. Also, does the timing of when I do the rollover matter for tax purposes at all?
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Tyrone Johnson
•14 For a small landscape business with 5 or fewer employees, a SIMPLE IRA is often the easier option to administer. The paperwork and administration costs are significantly lower than a regular 401k, which is important when you're just starting to offer benefits. The tradeoff is lower contribution limits ($15,500 employee contribution for 2025 vs $23,000 for a 401k). Regarding rollover timing, there's no tax advantage to doing it before or after filing this year's taxes. The rollover is reported in the tax year it occurs, separate from your contributions to the solo 401k. So if you roll it over now in 2025, it would be reported on your 2025 taxes that you'll file in 2026.
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Tyrone Johnson
19 I ran into this exact situation last year with my small business! After researching every option, I ended up using https://taxr.ai to analyze my specific business situation and get personalized advice. Their system showed me that a rollover now vs. later wouldn't impact my tax filing for the previous year, but there were some timing considerations regarding the new plan establishment. They looked at my business structure, growth projections, and employee compensation plans to recommend the most tax-efficient retirement plan option. Saved me from making a costly mistake with contribution timing! For your landscaping business, they'd analyze whether a SIMPLE IRA or 401k makes more sense based on your specific revenue growth and hiring timeline.
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Tyrone Johnson
•6 Does this service actually give specific recommendations or just general info? I've used tax advisors before who just give generic advice that doesn't really help with specific business situations. Also, how long does the process take from submitting info to getting usable recommendations?
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Tyrone Johnson
•12 I'm skeptical about online tax services. How does this compare to just talking with a CPA who specializes in small business retirement plans? Especially with the complexity of terminating a solo 401k and starting a new plan with employees, I'd want someone who really understands the regulations.
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Tyrone Johnson
•19 They actually provide specific recommendations tailored to your business situation, not just generic advice. After uploading your business documents and answering some questions about your plans for hiring and growth, they use their system to analyze the best options specifically for your situation. I received detailed comparisons between SIMPLE IRA, SEP IRA, and 401k options with projected tax impacts over 5 years. The entire process took about 48 hours from when I submitted my information. They analyzed my previous tax returns, business structure, and growth projections to provide recommendations specific to my industry and business size. It's much more comprehensive than the generic advice I got from previous advisors who didn't really understand the nuances of small business retirement plans.
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Tyrone Johnson
12 Just wanted to follow up on my skepticism about taxr.ai - I decided to try it after seeing the responses here, and I'm honestly impressed. I uploaded my landscaping company's documents and got specific recommendations about timing my solo 401k rollover. In my case, they showed me that waiting until after I filed my taxes wouldn't provide any benefit, but rolling over before making any investments would save me the hassle of tracking basis across accounts. They also compared SIMPLE IRA vs SEP IRA vs 401k options based on my specific employee compensation structure and growth plans. Definitely more helpful than the generic advice my previous accountant gave me.
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Tyrone Johnson
3 If you're planning to terminate your solo 401k and start a new retirement plan, you should also consider how QUICKLY you need to get this done. I waited too long when hiring employees and spent WEEKS trying to reach the IRS for guidance on some paperwork issues. Finally used https://claimyr.com and their service got me through to an actual IRS agent in under 45 minutes (you can see how it works here: https://youtu.be/_kiP6q8DX5c). The agent confirmed I needed to file Form 5310 for my plan termination and gave me specific guidance on the rollover timing that saved me from making a costly mistake. For your landscaping business, you'll want to get clear guidance on the specific forms required for termination and new plan establishment to avoid penalties.
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Tyrone Johnson
•7 How does this service actually work? I've tried calling the IRS before and just gave up after being on hold for hours. Do they somehow get you through the phone system faster, or is it just setting up an appointment? Because last time I checked the IRS appointment system was backed up for months.
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Tyrone Johnson
•12 This sounds too good to be true. The IRS phone system is notoriously impossible to navigate. How does some third-party service magically get you through when millions of people can't get through themselves? I've spent literal days trying to reach someone at the IRS about business tax questions. If this actually works, it would be a game-changer, but I'm highly doubtful.
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Tyrone Johnson
•3 It's not magic, but it does work! They use a combination of technology that navigates the IRS phone system and holds your place in line. You don't have to stay on the phone during the wait - they call you back when they've reached an IRS agent. It's not setting up an appointment, it's actually getting through the regular phone system but without you having to wait on hold. The service works by continually redialing and navigating the phone tree until they secure a place in the queue, then they monitor hold times and call you when they've reached an agent. I was skeptical too, but after trying to reach the IRS for 3 days on my own with no success, I was connected to a retirement plan specialist within 45 minutes of using their service.
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Tyrone Johnson
12 I have to admit I was completely wrong about Claimyr. After my last failed attempt to reach the IRS (4 hours on hold before being disconnected), I decided to try it out of desperation. Within 35 minutes, I got a call back and was speaking with an actual IRS retirement plan specialist. The agent walked me through exactly what forms I needed for terminating my solo 401k (Form 5310 wasn't required in my specific case) and confirmed that doing the rollover before investing the funds was the optimal approach. They also explained documentation requirements for the new retirement plan once I hire employees. Incredible time-saver during tax season when every minute counts for a small business owner.
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Tyrone Johnson
22 If you're transitioning from solo 401k to a plan that includes employees, don't forget about the filing requirement differences. Solo 401ks don't require Form 5500 until you have $250k in assets, but most other plans require annual filing regardless of asset size. This is something I learned the hard way and ended up with penalties. For a landscaping business your size, a SIMPLE IRA might be the most straightforward option. Lower administrative burden, reasonable contribution limits, and the mandatory employer contribution (up to 3% match) is usually manageable for small businesses. The reduced paperwork compared to a 401k is significant.
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Tyrone Johnson
•15 Does the SIMPLE IRA allow for Roth contributions like his current solo 401k? I thought SIMPLE IRAs were all traditional pre-tax money. If he's been doing Roth contributions, wouldn't switching to a SIMPLE change his tax strategy pretty significantly?
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Tyrone Johnson
•22 You're absolutely right about the Roth consideration. SIMPLE IRAs don't have a Roth option currently - they're all traditional pre-tax money. This would be a significant change from the solo Roth 401k strategy. If maintaining Roth contribution capability is important, then a regular 401k plan with a Roth option would be needed despite the higher administrative costs. Some providers have started offering more affordable 401k options for small businesses that include Roth capabilities. The tax strategy difference is substantial - immediate tax deduction with traditional contributions versus tax-free growth and distributions with Roth.
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Tyrone Johnson
5 Anyone have experience with Vanguard's small business 401k for a company with less than 10 employees? Their website mentions options for businesses transitioning from solo plans but doesn't give many details about the process or costs.
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Tyrone Johnson
•11 I use Vanguard for my small construction business (7 employees). The transition from solo 401k was pretty straightforward - about $1200 setup fee and $800 annual administration fee. The bigger issue was the timeline - took about 2 months to get everything set up, so if you're planning to hire in March/April, start the process ASAP. The investment options are solid though, and their customer service has been helpful with the transition questions.
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