QUESTION: I want to open a Roth solo 401k for investing in real estate and saving tax free for retirement, can I do this or are their restrictions?
ANSWER: First, there is no such thing as Roth Solo 401k, but rather a solo 401k that includes the “Designated Roth Account” option. For this reason, it is important to first confirm with your solo 401k plan document provider that their solo 401k (whether a checkbook solo 401k or a traditional solo 401k) plan allows for designated Roth contributions.
Regarding the Roth designated account rules, a separate bank/brokerage account will need to be setup to hold the Roth designated contributions as the rules do not permit the commingling of Roth and pretax 401k funds.
Lastly, because a solo 401k is only for the self-employed, make sure you first qualify by reading IRS publication 560. If you do qualify, keep in-mind that Roth contributions to a solo401k can only be made from net self-employment income and only from the salary deferral contribution type. For example, the maximum Roth contribution to a solo 401k for the 2013 tax year us $17,500 or $23,000 for those aged 50 or older.
Thanks a bunch,
Erin in Florida
