Top ten (10) differences between a Roth IRA and a Roth Solo 401k

 Roth IRARoth Solo 401k
Self TrusteeIRA custodian required by lawSolo 401k owner can serve as trustee and custodian
Participation Anyone with earned incomeOnly if the Solo 401k plan document allows for Roth Solo 401k contributions
Contribution limits$5,000

$6,000 (if age 50 or older)

$17,000

$22,500 (if age 50 or older)

Recharacterization of rolled over amountsPermittedNot permitted
Required Minimum distributionsOnly after original IRA owner’s deathYes
Tax on nonqualified distributionsNonqualified distributions are distributed in following order:

  1. Nontaxable contributions
  2. Taxable earnings
Nonqualified distributions are pro-rated between Roth Solo 401k contributions (nontaxable) and gains (taxable)
WithdrawalsAnytime. Maybe subject to tax if not a qualified distribution.Only when allowed by the terms of the plan. Subject to tax if not a qualified distribution.
LoansNoYes, if plan contains feature
5-year holding period for qualified distributionsBegins January 1 of the year a contribution is made to any Roth IRASeparate for each Roth Solo 401k account and begins on January 1 of the year contributions made to that account. If one Roth Solo 401k is rolled into another, the earlier start date applies.
BeneficiaryAnyoneAnyone but, if married, spouse must consent to nonspouse beneficiary

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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