What is a Qualified Roth Solo 401k Distribution?

Background:

The Roth component of a solo 401k plan for the self-employed is just that, a component. There is no such thing as a standalone Roth Solo 40l(k). Therefore, when a self-employed individual looks to have a Roth solo 401k, the self-employed business must sponsor a solo 40l(k) plan that offers a Roth component. Not all solo 401(k) providers offer plans that include the Roth solo 401k component.

Because Roth solo 401(k)s have now been around long enough, participants are starting to inquire about taking Roth solo 401k distributions.

Roth Solo 401(k) Qualified Distributions

As with Roth IRA distributions, once a Roth solo 40 l(k) distribution is qualified,” it will come out of the plan tax and penalty free. The rules for qualified solo 401k distributions are almost the same as the rules for qualified Roth IRA distributions.

  • The Roth solo 401(k) must have been established for 5 years, and
  • the distribution must be made after attaining age 59½; OR
  • The distribution is due to the death of the solo 401k plan participant; OR
  • The distribution is due to the disability of the solo 401k plan participant.

Example:

Matt made his first deferral to his Roth solo 401(k) in 2011. In 2017, Matt is 61 and he decides to take distributions from his Roth solo 401k component.  Matt is able to take a qualified distribution from his Roth solo 401(k) balance since he is over the age of 59½ and established his Roth solo 401k component more than 5 years ago. Any distributions Matt takes from his Roth solo 401(k) will be income tax and penalty free.

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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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