With the addition of Roth employer profit sharing contributions (aka nonelective) under SECURE 2.0, participants in 401k plans now qualify for three Roth options which are:
- Roth 401k elective deferrals (aka employee contributions);
- Roth 401k matching contributions; and
- Roth 401k nonelective contributions (aka employer profit sharing contributions).
However, of these 3 (three) types the solo 401k for the self-employed only qualifies for 2 (two) types: Roth solo 401k elective deferrals and Roth solo 401k employer profit sharing contributions (aka employer profit sharing contributions). Reason being, mathching contributions only apply to full-time employer 401k plans (aka Traditional 401k plans).
Roth Solo 401k Employer Profit Sharing Contributions
- Roth solo 401k employer profit sharing contributions are includable in the solo 401k participant’s income and must be separately tracked in Roth solo 401k designated account.
- Just like pre tax solo 401k employer contributions are discretionary, Roth solo 401k employer profit sharing profit sharing contributions are also not required to be made.
- Similar to Roth solo 401k employee contributions, Roth solo 401k employer profit sharing contributions are fully invested once made.
- Like employee Roth solo 401k contributions, Roth solo 401k employer profit sharing contributions can be rolled over only to another designated Roth 401k account or to a Roth IRA.
- As with Roth solo 401k employee contributions, Roth solo 401k employer profit sharing contributions are taxable when made to the Roth solo 401k designated account.
- Roth solo 401k profit sharing contributions are not subject to federal income tax withholding, Federal Insurance Contributions Act (FICA), or Federal Unemployment Tax Act (FUTA) taxes.
- Reporting requirements for Roth solo 401k employer profit sharing contributions are the same as those for an in-plan Roth rollovers and are reported in Boxes 1 and 2a using code “G” in Box 7 on Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc. Visit here for more information.
