Designated Roth Solo 401k Account – Creating a Designated Roth Solo 401k Contribution Program
A Solo 401k plan may permit business owners to designate some or all of their Solo 401k plan elective deferrals (also known as employee contributions consisting of $19,000 for 2019 tax year plus additional catch-up amount of $6,000 for those ages 50 and up) as after-tax Roth contributions.
As required by the IRS regulations, our Solo 401k plan document contains a designated Roth Solo 401k contribution program that complies with the following requirements:
- Separate accounts for designated Roth Solo 401k contributions
- A choice of both pre-tax and Roth Solo 401k elective deferrals
- That only Roth elective deferrals may be contributed to the designated Roth Solo 401k account (not profit-sharing contributions)
Solo 401k Plans offering designated Roth accounts may include:
- Plan loans (Solo 401k Loan)
- Employer matching contributions (must be contributed to another account, not to the designated Roth account)
- In-plan rollovers to designated Roth accounts
The IRS regulations only permit employee elective deferral contributions to a designated Roth Solo 401k account. Profit-sharing contributions (a/k/a employer contributions) may not be commingled to the designated Roth Solo 401k account. The profit sharing contribution must be contributed to another account within the Solo 401k plan.
Tax treatment of designated Roth Solo 401k contributions
Designated Roth Solo401k contributions are treated the same as pre-tax employee deferrals for many purposes, such as
- The annual Solo 401k contribution limits,
- Required minimum distributions, and
- Calculation of the Solo 401k plan’s deduction limits under Internal Revenue Code Section 404.