The Roth Solo 401(k) (also known as the Roth Individual 401(k)) is available to anyone with a Solo 401(k). It’s a benefit to higher-paid employees and self-employed individuals who may have been excluded from having a Roth IRA because of income limitations.
The Roth Individual 401(k) possesses the same benefits of the Individual 401(k) (higher contribution limits than other accounts), with the tax benefits of the Roth IRA. The contribution limits are the same as the Individual 401(k), but you can designate your contributions through salary deferral as Roth contributions.
Potential Benefit of the Roth Individual 401(k): Higher Contribution Limits
In 2019 you can annually contribute up to $19,000 and up to $25,000 if you’re 50 or over through salary deferral. Plus, you can contribute a profit-sharing portion (0-25%) of your salary. In 2019 the limit from both sources is $56,000 ($62,000 if you are 50 or over).
In 2020 you can annually contribute up to $19,500 and up to $26,000 if you’re 50 or over through salary deferral. Plus, you can contribute a profit-sharing portion (0-25%) of your salary. In 2020 the limit from both sources is $57,000 ($63,500 if you are 50 or over).
Like the Individual 401(k), The Roth Individual 401(k) is for incorporated and unincorporated businesses, sole proprietorships, partnerships, and corporations. The only requirement for contributions to this plan is that you receive a salary or wage.
The business entity must have no additional employees other than the spouse of the proprietor—or, in the case of a partnership, the only employees must be self-employed partners and their spouses.
An Individual 401(k) plan must be the only arrangement maintained by the business that is not included as part of a controlled group under federal tax law.
The deadline for establishing an Individual 401(k) plan is the last day of your business’s tax year (December 31, for a calendar tax year).
However, if your business is incorporated, you may want to establish an Individual401(k) plan early in the tax year to make employee salary deferrals based on the Form W-2 income throughout the year.
This is necessary because you may not defer on compensation that is paid to you from your corporation before you establish the Individual 401(k) plan.
If you’re interested in opening a Roth Solo 401(k), or for more information about this plan, please contact a Senior Account Executive at 855.233.4382.
Self-Directed Solo 401(k) FAQs
In this session, you’ll learn about:
Self-Directed Solo 401(k)s and Your Investment Options
Contributing to a Solo 401(k) and the Contribution Limits
Solo 401(k) Eligibility
Solo 401(k) Rules and Regulations
Potential Advantages of a Solo 401(k) or Roth Solo 401(k)
2020-2021 Contribution Limits
IRA Contribution Limits, Catch Up Provisions and Contribution Deadlines
2020 IRA Contributions & Deductions Infographic
Infographic summarizing IRS contribution limits and catch up provisions for retirement accounts
Equity Trust Company is a directed custodian and does not provide tax, legal or investment advice. Any information communicated by Equity Trust Company is for educational purposes only, and should not be construed as tax, legal or investment advice. Whenever making an investment decision, please consult with your tax attorney or financial professional. Equity Institutional services institutional clients of Equity Trust Company. Brokerage Services Available Through ETC Brokerage Services, Member SIPC, and FINRA. *Founded in 1974 | Self-Directed IRA Custodian since 1983. The predecessor business to Equity Trust Company was established in 1974 and the IRS approved as a custodian in 1983. **Assets under custody as of 3/31/2021.
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