Roth Solo 401k Contribution Guide

What type of funds can be contributed to a Solo 401k Roth account?

There are many sources of funds for Self-Directed Solo 401k plans and most – but not all – can be contributed to the Roth Solo 401k subaccount. Following are eligible sources of funds for a 401(k) Roth account:

  • Employee elective salary deferrals: These are funds that would be payable to you as compensation, which you elect to contribute to the 401k retirement plan. You can do so on a pre-tax basis or choose to treat them as 401k Roth contributions. Section 402A of the Tax Code refers to such Roth contributions as Designated Roth Contributions and applies a combined limit to all Roth and Non-Roth employee elective deferrals. Currently (2017), the combined limit is $18,000 per individual.
  • Catch up contributions: Individuals age 50 and above can contribute an additional $6,000 to their 401k plan. These contributions can be made on a pre-tax basis or to a Roth subaccount.
  • Rollovers from employer Roth 401K accounts: Section 402A(c)(3) allows rollovers between Roth 401k accounts (but not from Roth IRAs to Roth 401(k)s). There are no limits on such 401k Roth contributions.
  • Rollover Roth conversions: These are rollovers from traditional (non-Roth) IRAs and traditional (non-Roth) employer plan accounts. There are no limits on such 401(k) Roth contributions.
  • In-plan Roth conversions: These are contributions to a Roth subaccount from pre-tax accounts or non-deductible balances within the same Solo 401k plan. Section 402A(c)(4)(e) allows for in-plan conversions of all Solo 401k balances, regardless of whether or not they are otherwise distributable. There are no limits on such Solo 401k Roth contributions.

What type of funds can’t be contributed a Solo 401k Roth account?

  • Employer profit-sharing contributions: Only employee contributions can be Designated Roth contributions. Therefore, all forms of employer contributions, elective or matching, can be made only to Solo 401k pre-tax accounts. These amounts, however, can be converted to Roth funds using an in-plan Roth conversion strategy.
  • Roth IRA rollovers: Roth IRAs cannot be rolled-over to Solo 401k Designated Roth Accounts, or any other type of retirement account. See Treasury Regulations 1.408A-6 and 1.408A-10.

What is a Mega Backdoor Roth 401K?

Roth Solo 401k In-Plan conversions can be used to execute the Mega Backdoor Roth Strategy. This strategy enables you to get up to $120,000 per year in Roth contributions, regardless of your income or MAGI. The Mega Roth is available only in Solo 401(k) plans that allow for Roth subaccounts and in-plan conversions.

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