401(k) Rollovers — This Isn’t Rocket Science!

IRS rollover rules can be complicated and confusing.  Confusing especially when you do not do them all of the time.  But, it is a little bit more disappointing when a very large self-directed IRA custodian hangs someone out for 2 months when they can’t figure out what to do.  What even makes this more laughable is that the large self-directed IRA custodian actually establishes 401(k) plans as well.

So, why blog about this?

Honestly, getting out a bit of frustration on behalf of the client (or maybe more me!) as I assisted the client with the difficulties he was having with the rollover request…but I also believe it is a great educational piece for a Solo 401(k) client.  Remember, for most of you, at some point in time will be terminating your plan, and possibly rolling over the 401(k) assets to a self-directed IRA.

The client was closing out his business and, therefore, his 401(k) plan.  He called the self-directed IRA custodian where he already held a self-directed IRA.  He advised that he had a Solo 401(k) plan and the cash assets were being held in an account at Schwab, but the plan also held a piece of property rightly titled in the name of the plan.  He asked what they would need from him (as Trustee) to have all of the assets (both cash and property) correctly rolled over and titled in the IRA.  Oh boy, you would have thought he asked and requested an impossible task.

The custodian stumped him by advising him that, while they could take the cash in rollover, they could not accept the “asset-in-kind” in the form of the property.   I know most of you are saying right now, “How can the IRA accept cash but not the property….wouldn’t either all the assets be accepted or none of the assets?”   And, yes, you would be correct.

But, the custodian advised that since the 401(k) account was at Schwab, they would need to release the property as an asset of the 401(k) plan in rollover.  But, this is pretty difficult to do as Schwab is the not legal trustee of the plan and, therefore, could not even release the asset if they wanted to.


Well, for those of you who have listened to me in the past, you know that Schwab (in this case) does not have compliance responsibility for the plan….the account is merely being housed at Schwab to hold the liquid assets.  Just as with most any Solo 401(k) plan, the plan is trustee-directed and, as such, the plan and its trustee executes the rollover, not Schwab.

Now you would think that this was just an easy explanation to the custodian….I mean they would have to understand, right….they are a self-directed IRA custodian.  Uh, no.  They steadfastly maintained that they could accept the cash but not the property.  The client contacted PGI and I assisted the client with preparing a letter that fully explained what was occurring (and what they should have known from the very start)….all the Solo 401(k) trustee was requesting was the rollover of all assets to the IRA.  What was also very frustrating for the client is that the custodian would never let the client speak to anyone other than their reps.  When he would visit with the custodian and ask to speak to someone in their compliance department, the custodian reps said they would send an email to their compliance department and he could call back at a later time for a response.  (now that is what I call customer service!).

Well, on to the good news.  After submitting the letter that fully explained what was being requested, the custodian finally indicated that they could accept all of the assets in rollover.  Duh!  The unfortunate thing is that they made him run the gerbil wheel for two months for no reason.

Remember, if and when you terminate your 401(k) plan (in addition to terminating your plan correctly), and want to rollover the assets to a self-directed IRA, there shouldn’t be any reasons why you cannot rollover both liquid assets (cash) and assets-in-kind (e.g., property).  A custodian should be more than prepared to assist you with the rollover of all assets from your 401(k) plan.

As always, the information provided is intended to be educational in nature.  It is not intended, nor should it be interpreted as, any form of tax, legal, financial or investment advice.  You must always consult your respective professional for all such matters.