Closing a self-directed plan involves two things: resolving the plan assets, and completing the administrative steps required by your plan type.
Every asset held in the plan must be distributed before the plan can be closed. A distribution moves assets out of the plan, either to you as the account holder or as a rollover to another qualified retirement plan. Both options are available whether the assets are cash or held in-kind.
If you take a distribution to yourself, the tax treatment depends on whether your account holds tax-deferred or Roth funds. Tax-deferred distributions are subject to ordinary income tax, and an early withdrawal penalty applies if you are under age 59½. Qualified Roth distributions are generally tax-free. Rolling the assets to another qualified plan preserves their tax treatment and avoids penalties regardless of account type.
Most clients liquidate their investments to cash before closing. Where liquidation is not practical, such as with real estate or shares in a privately held company, assets may be distributed or rolled over in-kind. Your tax professional can advise on the valuation and reporting requirements that apply.
Once assets have been resolved, the plan entity is closed. For an IRA LLC or IRA Trust, this means dissolving the entity and closing the associated bank account. The IRA custodian closes the IRA once the account balance reaches zero. For a Solo 401(k), the plan must be formally terminated and a final Form 5500-EZ filed with the IRS.
Plan-specific instructions are available to clients in the Knowledge Base. Contact our support team if you have questions about your situation.
This information is provided for educational purposes only and should not be interpreted as tax, legal, or investment advice. Readers are encouraged to consult a qualified professional who can offer guidance based on their personal situation.