What happens to a Solo 401(k) after you retire or close the business?

A Solo 401(k) is built for owner-only businesses and self-employed individuals. While you’re working, it’s often the most efficient place to save because it can allow sizable contributions and broad investment choices. Once you retire, stop self-employment, or close the business, the “contribution phase” ends. From that point forward, the account becomes a distribution and management vehicle. You still control the investments, you still have administrative responsibilities, and you still need a plan for how withdrawals will support your lifestyle.

In real life, most Solo 401(k) owners end up choosing one of three paths. Some leave the plan in place and continue managing investments while taking distributions over time. Others roll the plan into a traditional IRA to simplify recordkeeping and consolidate accounts. A third group uses an annuity to create predictable retirement income and reduce market volatility—especially if they’re relying on withdrawals to cover essential expenses.

For many retirees, the appeal of the annuity path is that it can reduce “income stress.” Instead of constantly monitoring the market, adjusting withdrawal rates, or worrying about sequence-of-returns risk, they can lock in a dependable stream of retirement cash flow. If you want to see how this decision plays out at retirement in a broader sense, review: What should I do with my Solo 401(k) after I retire?

It’s also common for Solo 401(k) owners to compare their situation to retirees leaving traditional employer plans. Even though the plan structure is different, the planning questions are similar: how to reduce volatility, how to generate a paycheck, how to avoid preventable taxes, and how to keep the whole household protected if one spouse outlives the other.

Can a Solo 401(k) be transferred to an annuity?

Yes—a Solo 401(k) can be transferred to an annuity as long as the movement is handled as a qualified rollover so the funds remain tax-deferred. In most situations, the goal is to keep the money inside the “qualified” retirement system. That means you’re not cashing the account out and you’re not moving it into a non-qualified annuity structure. You’re rolling from one qualified retirement vehicle into another qualified retirement vehicle, and the annuity contract is issued as a qualified annuity (often inside an IRA framework).

In practice, many Solo 401(k)-to-annuity transfers follow a clean, two-stage route. First, the Solo 401(k) is rolled into a traditional IRA. Second, the IRA funds are used to purchase an IRA-qualified annuity. This approach is popular because it tends to be easier administratively, gives you more carrier flexibility, and reduces the chance of paperwork friction that can happen when a plan document is older or custodian processes are slow. It also makes ongoing beneficiary management and distribution servicing simpler for many households.

The most important concept to understand is that the rollover should be done as a direct movement of funds—custodian to custodian—so you don’t create a taxable distribution accidentally. If you want a quick primer on why the “direct” method matters, use this reference: What is a direct rollover?

Once you understand how direct rollovers work, you’re ready to evaluate annuity types and decide what role the annuity should play in your retirement plan. That decision comes before product selection. A good annuity strategy starts with the “job” the money needs to do (income, protection, or income plus growth), then matches that job to a contract structure.

Why retirees consider annuities after a Solo 401(k)

During your working years, volatility is often framed as a temporary inconvenience. If the market drops, you keep contributing, you keep working, and you have time to recover. In retirement, volatility becomes a different animal because withdrawals interact with market losses. A down year isn’t just a down year; it can permanently change the trajectory of the portfolio if you’re pulling income while values are reduced. That is why many retirees begin to prioritize income reliability over maximum upside.

When a Solo 401(k) is the primary retirement asset, the stakes feel higher. You don’t have a traditional pension. You may not have employer-sponsored benefits. You built your retirement personally, and now you want it to behave like a dependable paycheck. Annuities are often introduced to stabilize that paycheck. The goal is not necessarily to move everything; it is often to carve out a portion of assets that will cover essential monthly expenses—housing, insurance, food, utilities—so the rest of the portfolio can be invested more patiently.

Some retirees also choose annuities because they want to simplify decision-making. Retirement is not just financial; it’s psychological. Reducing “money decisions” can be a quality-of-life upgrade. Rather than constantly recalculating withdrawal rates, watching the market, or wondering if they should delay spending, retirees can create a stable foundation and spend confidently.

Of course, annuities aren’t a perfect fit for every situation, and not every annuity is a good fit even when an annuity strategy makes sense. That’s why the better question is rarely “Are annuities good?” and more often “Are annuities good for what I’m trying to accomplish?” If you want a broader, role-based discussion, see: Are annuities worth it?

Which annuity types are commonly used with Solo 401(k) rollovers?

When retirees roll qualified money into an annuity, they typically focus on annuities built for retirement planning: protection-first designs, income-first designs, or designs that can do a mix of protection and future income. The most important step is matching the annuity type to the time horizon and income goal. A contract that is perfect for income in two years can be a poor fit for someone who won’t need income for ten years, and vice versa.

Fixed annuities and MYGAs are commonly used when the goal is predictable growth without market risk. A MYGA (multi-year guaranteed annuity) is often compared to a CD because it credits a stated rate for a set term, but it can offer tax-deferred accumulation inside your qualified retirement structure. This can be useful when you want the account to earn a known rate while you plan the timing of retirement income. Fixed annuities are also used as “stability buckets” when retirees are nervous about volatility but still want the money to grow.

Fixed indexed annuities are used when retirees want principal protection but also want the potential for interest credits based on index performance (with contract-defined limits). The structure can feel attractive because it’s not direct market exposure, but it still offers a growth engine that may outperform a pure fixed rate over time depending on terms and crediting methods. Many of these contracts can also include optional income features that can turn into lifetime income later.

Income-focused annuities are used when the primary objective is to convert a portion of the account into a dependable paycheck. Some retirees want income now; others want to lock in income that starts later. The key decision is how much of the Solo 401(k) should be used to create a baseline income floor versus how much should remain available for liquidity, legacy goals, or growth. If you’re evaluating whether annuities can be a good “retirement investment” in the sense of income function, this perspective can help: Are annuities a good investment in retirement?

One more nuance: annuity growth and crediting are not all “the same.” Many contracts use pricing components that affect how interest is credited. If you like to understand the moving parts behind the scenes, this primer can be helpful: What is an annuity spread rate?

Step-by-step: how to transfer a Solo 401(k) to an annuity

The exact paperwork can vary depending on where the Solo 401(k) is held and whether you’re rolling it into an IRA first, but the logic is consistent. You want the money to move directly, remain qualified, and land in the annuity in a way that supports your planned income start date. Below is the workflow our advisors typically follow to keep the transfer clean.

Step 1: Confirm the Solo 401(k) status and plan details. Before anything moves, confirm whether the business is still operating, whether the plan is still accepting contributions, and whether there are any plan document requirements for termination or distribution processing. Some Solo 401(k) plans require a formal step to “close” or “freeze” the plan before a full rollover is processed. If you’re still working and contributing, you may prefer a partial strategy rather than a full plan exit.

Step 2: Decide whether this is a partial transfer or a full transfer. Many retirees don’t want to roll everything. They want enough protected income to cover essential expenses, while keeping other money liquid and flexible. This is often a better fit for households with irregular spending, upcoming healthcare costs, or business-related uncertainty. A good plan defines which dollars are “income floor dollars” and which dollars are “flexibility dollars.”

Step 3: Choose the destination structure. In many cases, the destination is a traditional IRA (as the receiving vehicle) and then a qualified annuity inside that IRA structure. For some custodians and carriers, you may be able to accept funds directly from the Solo 401(k), but the IRA route is commonly smoother and easier to service long-term. Your advisor will match the path to the custodian rules and the annuity carrier’s rollover acceptance requirements.

Step 4: Use a direct rollover, not an indirect distribution. The transfer should be coded as a direct rollover so you don’t accidentally trigger withholding or a taxable distribution. This is one of the most common points of failure when people try to “DIY” the move. If you want to understand why that direct method matters (and what language to look for on the paperwork), review: What is a direct rollover?

Step 5: Set the annuity up to match the job the money needs to do. This is where retirees get the most value from guidance. A rollover is only the mechanical step. The real planning decision is how the annuity is structured: whether income begins immediately or later, whether the contract should prioritize higher guaranteed income versus more liquidity, and whether spousal continuation or beneficiary designations need to be emphasized. For many households, income design is a “household decision,” not an individual decision—because one spouse’s longevity and income needs impact both.

Step 6: Coordinate distributions and required minimum distributions (when applicable). A Solo 401(k) rollover doesn’t eliminate retirement distribution rules. It changes where the rules are serviced. Your plan needs to account for when required minimum distributions apply and how withdrawals will be taken from the annuity if the annuity is part of the qualified structure. A good plan also coordinates annuity income with Social Security timing, pensions (if any), and other retirement accounts, so you’re not stacking taxable income unintentionally in the same years.

Step 7: Confirm beneficiary structure and paperwork accuracy. Retirement transfers are a documentation game. Small errors create big delays. Before the money moves, confirm that beneficiary designations are clear, consistent with estate wishes, and correctly recorded. Many retirees also explore annuity-specific beneficiary options and payout structures because they can differ from investment account beneficiary mechanics. For a focused overview of how annuity beneficiaries typically work, see: Annuity beneficiary death benefits

When the process is handled correctly, the rollover is typically straightforward. The biggest risk is not complexity—it’s speed and accuracy. Slow paperwork, missing signatures, incorrect rollover coding, or a check issued the wrong way can cause avoidable delays. That’s why many retirees prefer to have a guided workflow, especially when the Solo 401(k) is a large portion of household retirement assets.

Taxes and required minimum distributions: what changes (and what doesn’t)

A properly executed Solo 401(k)-to-annuity rollover can be tax-neutral at the time of transfer because you’re moving qualified funds into another qualified structure. That said, the tax outcome depends on how the money moves. If the transfer is direct, it is generally treated as a rollover rather than a distribution. If the transfer is indirect (money is paid to you), the process can create withholding, timing pressure, and potential tax consequences if the redeposit isn’t handled correctly.

Once the annuity is in place inside the qualified structure, future withdrawals are generally taxed as ordinary income when distributed, just like they would have been from the Solo 401(k). What changes is the distribution experience: instead of managing market-driven withdrawals, you may be managing a structured income stream. That’s often the point—predictability and planning control.

Required minimum distributions can still apply when you reach the applicable age. If your annuity is part of your qualified retirement assets, the contract needs to support the withdrawal mechanics. Many carriers service RMD withdrawals smoothly, but the specific contract terms and servicing options matter. The planning goal is to ensure the annuity supports your withdrawal needs without forcing avoidable penalties or creating unnecessary complexity.

If you’re trying to model how long your retirement assets might last under different withdrawal patterns, it can help to look at longevity planning tools and retirement run-rate concepts. For Solo 401(k) owners specifically, this resource is useful for framing the “how long will this last” question: How long will my Solo 401(k) last in retirement?

Liquidity planning: the part most people overlook

One of the most important questions in a Solo 401(k)-to-annuity strategy is not “What’s the rate?” but “How much liquidity do I need, and which dollars should stay flexible?” Annuities are long-term tools. Many offer annual free-withdrawal features and rider-based income, but they still need to be matched to your time horizon. If you know you’ll need a large cash expense in the next 12–24 months—major home repairs, a vehicle, a business wind-down cost, or a medical event—those dollars may be better left outside the annuity portion.

A practical way to think about this is to split retirement money into purpose-based buckets. You can designate one bucket as “income floor” to cover essentials and another bucket as “flexibility” to handle irregular spending. Some households also keep a separate “opportunity” bucket for growth investments. The annuity often sits in the income floor bucket. That doesn’t mean the annuity has no liquidity; it means you’re not relying on it as your primary emergency fund.

Liquidity also matters because retirement rarely goes exactly as planned. Travel, healthcare, family support, and housing changes can show up without much warning. The best annuity strategies are designed with these realities in mind. That’s why many retirees choose a partial transfer rather than an all-in move, and why contract selection should be based on the household’s true spending pattern instead of an idealized plan.

How this strategy fits into a broader retirement income plan

Most successful retirements rely on multiple income sources. Social Security provides a base. Retirement accounts fill in the gap. Some households have pensions or rental income. For many self-employed people, the Solo 401(k) is the centerpiece. That can work beautifully, but it also means the distribution strategy needs to be strong. A portfolio-driven approach can be effective, but it requires discipline, risk tolerance, and ongoing management. Annuities often enter the picture when a household wants to make the “paycheck” portion of retirement more stable.

A common planning goal is to make sure essential expenses are covered by reliable income sources. If Social Security covers part of the essentials, the annuity can cover the remaining portion. The rest of the portfolio is then free to remain invested for growth, legacy, or discretionary spending. This structure is often easier to live with emotionally because the household isn’t forced to sell investments during down markets to cover basic bills.

Solo 401(k) owners also tend to have unique planning factors: variable income histories, business wind-down timing, and a stronger desire to simplify admin as they age. A rollover can reduce complexity by consolidating accounts and turning a portion of retirement savings into a predictable income stream. If you want a broader framework for “what should I do now that I’m retired,” this is a helpful parallel resource that applies to many retirees, including business owners: What should I do with my 401(k) after I retire?

The bottom line is that annuities are not “all or nothing.” For many households, they are a strategic tool used for a specific job: reducing income volatility and helping retirement feel stable. The best outcome usually comes from a clear income plan, a clear liquidity plan, and a contract selection that fits the household’s timeline—not just a product picked because it looked attractive in isolation.