As long as distributions made from a Roth Solo 401k designated account are considered qualified Roth solo 401k distributions, they will not be subject to taxation nor will penalties apply.
To qualify as a qualified distribution, the following two Roth solo 401k distribution requirement must be first satisfied:
- Takes place at minimum 5 years after the first designated Roth Solo 401k contribution was applied to the designated ROTH Solo 401k account, and
- The distribution is made:
On or after the owner-only employee (solo 401k participant) attains age 59 ½
As a result of the business owner’s disability, or
On or after the business owner’s death.
Applicable Regulation Code Sections
IRC § 402A , IRS Notice 2005-95, Treas. Reg. §1.401(k)-1(f)(1), Treas. Reg. §1.401(k)-6, Treas. Reg. §1.401(m)-5, Prop. Treas. Reg. § 1.403(b)-7(a), Prop.Treas. Reg. § 1.403(b)-5(b)(1)
If the Solo 401k Roth distribution is made before the above rules have been satisfied, it will be deemed non-qualified, resulting in taxes and early distribution penalties may apply to the gains.
The sequential distribution rules that apply to Roth IRA distributions do not apply Roth Solo 401k contributions.