A Roth Solo 401(k) is not a separate plan type; it is a standard Solo 401(k) with the Designated Roth Account feature enabled. The same plan holds both pre-tax and Roth savings in separate sub-accounts. The key distinction is how contributions are taxed and what that means for distributions in retirement.
Employee deferral contributions to a Solo 401(k) can be designated as pre-tax (Traditional) or post-tax (Roth), or split between both. Under SECURE 2.0, employer profit-sharing contributions may also be designated as Roth, provided the plan document allows for it. The plan tracks each sub-account separately for recordkeeping and reporting purposes.
Roth contributions go in after-tax. All growth and qualified distributions from the Roth sub-account are tax-free.
This is the feature that sets the Roth Solo 401(k) apart from the Roth IRA. Roth IRA contributions are phased out above certain income thresholds, and high earners are excluded entirely. A Solo 401(k) has no such restriction. Regardless of your income level, you can designate employee deferrals as Roth contributions up to the annual employee deferral limit.
Existing pre-tax balances in the Solo 401(k), whether from prior rollovers or prior-year contributions, can be converted to Roth status within the plan. The converted amount is treated as taxable income in the year of conversion. All subsequent growth in the converted balance becomes tax-free following a five-year seasoning period.
This makes the Solo 401(k) a powerful vehicle for investors who want to strategically shift tax-deferred savings to tax-free status over time.
A Roth Solo 401(k) cannot accept a rollover from an existing Roth IRA. Roth funds can enter the plan only through new employee deferral contributions, a rollover from the Roth sub-account of a prior employer 401(k), or an in-plan conversion from pre-tax balances.
Can I contribute to both the pre-tax and Roth sub-accounts in the same year?
Yes. You can split your employee deferral between pre-tax and Roth in any proportion you choose, as long as the combined total does not exceed the annual employee deferral limit. The decision of how to allocate is yours to make each year.
Can I convert just a portion of my pre-tax balance to Roth?
Yes. Partial in-plan conversions are permitted. You can convert any dollar amount, from a fraction of your account to the entire pre-tax balance.
This information is provided for educational purposes only and should not be interpreted as tax, legal, or investment advice. Readers are encouraged to consult a qualified professional who can offer guidance based on their personal situation.