Harvard Law Attorney George Blower answers the question whether Required Minimum Distributions (RMD) from an inherited IRA can be contributed to a solo 401k.

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Sidedoor 401k: Can I contribute Required Distributions (RMD) from inherited IRA into my solo 401k?

In the world of retirement savings, there are numerous options available to individuals looking to prepare for their golden years. One popular choice is the solo 401k, which allows self-employed individuals to save for retirement while enjoying tax benefits and the ability to make significant contributions. However, when it comes to managing retirement accounts, there are also rules and regulations that need to be followed.

If you have inherited an IRA and are required to take Required Minimum Distributions (RMD), you may be wondering if you can contribute these distributions into your solo 401k. This is a common question that many individuals have, and the answer is not always straightforward.

In general, RMDs from an inherited IRA are not eligible for rollover contributions into a solo 401k. The IRS has specific rules regarding rollover contributions and RMDs, and it’s important to understand these rules to avoid any potential penalties or tax consequences. However, there are some exceptions and alternatives that may allow you to use your RMDs to contribute to your solo 401k.

One option is to use your RMDs from an inherited IRA to fund your living expenses, allowing you to contribute the same amount from your earned income into your solo 401k. This can help you maximize your retirement savings while satisfying the RMD requirements.

Another alternative is to convert the inherited IRA into a Roth IRA and utilize the funds from the RMD to pay the taxes on the conversion. Once the funds are in a Roth IRA, you can contribute them to your solo 401k, as Roth IRA distributions are generally eligible for rollover contributions.

It’s important to note that these options may have potential tax implications, so it’s essential to consult with a financial advisor or tax professional to ensure that you understand the potential consequences of your decisions.

In conclusion, while RMDs from an inherited IRA are generally not eligible for rollover contributions into a solo 401k, there are alternatives and options available that may allow you to contribute these distributions to your retirement savings. Understanding the rules and regulations surrounding RMDs and rollover contributions is crucial to avoid potential penalties and ensure that you are making the most of your retirement savings opportunities. Consulting with a financial professional can help you navigate the complexities of retirement account management and make informed decisions about your financial future.