How to Self-Direct a Roth Solo 401k

A self-directed solo 401k plan allows for designated Roth contributions. A designated Roth account is a separate account in a self-directed solo 401k that holds designated Roth contribution.  Designated Roth contributions are made up of elective deferrals also known as employee contributions that do not reduce the participants income taxes in the year made because they are made on an after-tax basis.

In order to self-direct a Roth solo 401k plan, the plan provider’s solo 401k plan must allow for Roth solo 401k contributions. As a solo 401k plan provider, a self-directed solo 401k from My Solo 401k Financial allows for Roth designated account contributions and it can also be self-directed into alternative investments such as real estate, metals, tax liens, private shares, notes, cryptocurrency and equities.

Getting Roth funds into the Self-Directed Solo 401k Plan

There are a few methods of getting Roth funds into the solo 401k plan.

Method 1: Make an Annual Roth Solo 401k Contribution

You can begin making designated Roth contributions to the solo 401k plan as soon as you start to generate earned income through the self-employed business. For 2019, the maximum Roth contribution is $19,000, or $25,000 if your are age 50 or older. For 2020, the elective deferral increased from $19,000 to $19,500, or $26,000 if age 50 or older.

Method 2: Fund by Transferring Roth Funds from Former Employer Plans

While the Roth IRA rules do not allow for the transfer of Roth IRA funds to any type of qualified plan( see IRS Pub. 590 for more on this restriction) including a self-directed Roth solo 401k, the same restriction does not apply to qualified plans. Therefore, if you hold Roth funds in a former employer 401k, 403(b), TSP, or governmental 457(b) plan, those Roth funds can be transferred to the self-directed Roth solo 401k.

Method 3: In-Plan Conversion

A solo 401k plan allows for the conversion of existing solo 401k funds to the solo 401k designated Roth account. Both pretax and voluntary after-tax funds may be converted to the Roth solo 401k account.

Placing Investments Under the Self-Directed Roth Solo 401k

As stated above, Roth Solo 401k contributions must be separately accounted for in the solo 401k plan. This is a 401k regulation. The solo 401k trustee must keep track of gains, losses, contributions and distributions in the Roth solo 401(k) account and must be able to determine the basis in the account. This is easily accomplished under a separate bank or brokerage account dedicated to holding the Roth solo 401k funds.

More Resources

Roth Solo 401k 

Contributing to a Roth Designated Account

Items to Consider Before Converting

About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>


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