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Reporting Requirements

Performing a Roth conversion

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IMPORTANT: Please speak with your CPA prior to performing a Roth conversion in order to understand the tax consequences. This is a taxable event. 

For more information on Roth conversions, review our Knowledge Base articles.

If you would like to perform a Roth conversion, please do the following:

  • Open a separate 401k account for the Roth funds, if you do not have one yet

From a banking standpoint, the Roth account is established in the same way as the pre-tax account, i.e. in the name of the 401k and using the EIN of the 401k.

The separate account is simply to keep the Roth funds separate from the pre-tax funds. Separate accounts are strongly recommended for ease of accounting.

Bank Account Set Up
  •  Move the funds from the pre-tax 401k account to the Roth 401k account

This must be completed by the end of the year (e.g. December 31, 2025) to claim the Roth conversion for the year (e.g. 2025).

The completed form is not given to anyone else; it will be kept in your file as part of your recordkeeping as Plan Administrator.

  • Report the Roth conversion through Form 1099-R

As Plan Administrator, you are responsible for the filing of Form 1099-R for your plan. The Roth conversion will be included as part of this year's taxable income.

Form 1099-R Instructions

Note: you are not able to rollover pre-tax funds from your previous retirement account directly into the Roth account for your Solo 401k.

For a Roth conversion, you must first rollover pre-tax funds into the pre-tax account of your Solo 401k. You can then perform the conversion and move the funds into the Roth account of your Solo 401k.

Recharacterization of Roth conversion

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Last December, my accountant grossly miscalculated my tax liability estimate, which led me to believe that a Roth conversion could be made with a manageable tax impact. Later, when she prepared my tax returns in April, I discovered that my tax liability was actually much higher, and that the tax impact of the Roth conversion was too great to make it worthwhile. Can the Roth conversion can be reversed through timely recharacterization within my Solo 401k plan?

Answer:

No.  You cannot undo the Roth conversion.

The "Participant's Election" section of the In-plan Roth Conversion Amendment states that the in-plan Roth conversion is irreversible and cannot be undone or recharacterized in any manner.  To not follow the terms of the plan (as stated in the amendment) would be an operational failure of the plan.

The Internal Revenue Bulletin: 2010-51 published December 20, 2010 (also listed as Notice 2010-84) provides Guidance on In-Plan Roth Rollovers:

https://www.irs.gov/irb/2010-51_IRB/ar11.html

In the Question/Answer section, it states the following:

Q-6. If a participant elects an in-plan Roth rollover, can he or she later unwind the in-plan Roth rollover, as can be done with rollovers to Roth IRAs?

A-6. No. The recharacterization rule in § 408A(d)(6) applies only to contributions to IRAs.

There is no way to reverse the Roth conversion.  You will have to declare that as your taxable income and pay the taxes. Please consult with your CPA for details.

Converting property in 401k to Roth

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My Solo 401k Trust owns a rental property.  If I determine that it is better to pay the taxes on the value in the 401k now, could I convert the property and other cash in the account into a Roth 401k without selling and liquidating the property?

Answer:

You can convert property and other assets in your 401k into Roth. This will be taxable event so I strongly suggest you discuss this with your CPA.

For a Roth conversion of property, you must use a licensed third party appraisal to determine the accurate value of the property.  The appraisal must be dated as close as possible to the taxable event.

You will then need to complete a Roth Conversion form (located in Miscellaneous Forms). Your 401k will need to issue a 1099-R to you in the year following the conversion, and you will have to declare that as taxable income on your tax return. You are responsible for filing 1099-R on behalf of your plan.