Allowable Roth Solo 401k Contributions
Only these funds can be contributed to Roth Solo 401k:
- Elective salary deferrals (employee contributions–$17,500 for 2014)
- Catch-up contributions (age 50 or over–$5,500)
- Rollovers from other Roth 401k plans (unlimited amounts)
- Conversions (rollovers) from IRAs or other (non-Roth) employer plans (unlimited amounts)
These funds CANNOT be contributed to Roth Solo 401k:
- Employer matching contributions (these can only be applied to the regular Solo 401k)
- Rollovers from Roth IRAs
Overview of the Roth Solo 401k Contribution Rules
Roth Solo 401k contributions have been allowed since January 1, 2006. While our plan document allows for Roth contributions, not all Solo 401k providers allow for Roth contributions.
Roth Solo 401k is governed by the same rules as other 401k plans. Therefore, contribution and distribution restrictions apply.
The income limits do not apply to Roth Solo 401k contributions. Contributions to Roth Solo 401k are made up of salary deferrals (employee contributions), and are contributed with after-tax funds. Unlike deferrals made to regular solo 401k, amounts deferred to Roth Solo 401k do not reduce your taxable income for the tax year.
Ryan, a self-employed business owner, participates in a Solo 401k that allows for Roth and regular, non-Roth Solo 401k contributions. This year Ryan makes $60,000 and defers $10,000 of his self-employment earnings to his non-Roth Solo 401k account.
Non-Roth Solo 401k–the $10,000 deferral is treated as pre-tax, thereby reducing Ryan’s income by $10,000 to $50,000. It is as if Ryan only made $50,000 a year because he is only required to pay taxes on $50,000.
Roth Solo 401k– The facts are the same as above except that Ryan chooses to treat the $10,000 deferral as a Roth contribution instead. The $10,000 deferral is now considered after-tax. As a result, Ryan’s full $60,000 self-employment income is subject to withholding.
In-plan Solo 401k Roth Rollovers
An in-plan Roth rollover is the movement of assets from your existing Solo 401k to a designated Roth Solo 401k account within same Solo 401k plan. Visit our blog to learn about in-plan Solo 401k Roth rollovers by clicking here.