Designated Roth Solo 401k Account
Thanks to IRS regulations effective for tax years beginning January 1, 2006, retirement accounts such as 403(b), 457(b), TSP and 401k plans including Solo 401k plans can all be used to make designated Roth account (DRA) contributions.
Salary Deferral, Irrevocable and Separate Account
When contributions made to a Solo 401k are designated as Roth Solo 401k contributions, they must be irrevocable, only include salary deferral (also known employee) contributions and must be deposited in a brokerage account or bank account specifically labeled as a Designated Roth Account (DRA).
The salary deferral contributions can be made in whole or in part to the Roth solo 401k.
Unlike pre-tax solo 401k contributions, which are tax deductible on the self-employee’s tax personal tax return, Roth Solo 401k contributions are not excluded from the owner only employee’s taxable income.
Therefore, in addition meeting the separate holding account for Roth Solo 401k contributions, employer (also known as profit sharing) contributions cannot be made to a Roth Solo 401k.
Contribution Amount
Designated Roth solo 401k contributions cannot exceed the 402(g) limit, which is $17,500 for tax year 2013.
Catch-up Amount
Lastly, a catch-up contribution of $5,500 may be applied as a Roth solo 401k contribution for tax year 2013, provided the self-employee individual is turns 50 in 2013 or is over age 50. As such, when including the catch-up amount, the self-employee individual can contribute as much as $23,000 for tax year 2013, which applies separately to each business partner or spouse, thus allowing for total Roth Solo 401k contribution of $46,000 for bot solo 401k spouses or partners combined.
IRS Code Sections That Apply
RC § 402A , IRS Notice 2005-95, Treas. Reg. §1.401(k)-1(f)(1), Treas. Reg. §1.401(k)-6, Treas. Reg. §1.401(m)-5, Prop. Treas. Reg. § 1.403(b)-7(a), Prop.Treas. Reg. § 1.403(b)-5(b)(1)
Salary Deferral, Irrevocable and Separate Account
When contributions made to a Solo 401k are designated as Roth Solo 401k contributions, they must be irrevocable, only include salary deferral (also known employee) contributions and must be deposited in a brokerage account or bank account specifically labeled as a Designated Roth Account (DRA).
The salary deferral contributions can be made in whole or in part to the Roth solo 401k.
Unlike pre-tax solo 401k contributions, which are tax deductible on the self-employee’s tax personal tax return, Roth Solo 401k contributions are not excluded from the owner only employee’s taxable income.
Therefore, in addition meeting the separate holding account for Roth Solo 401k contributions, employer (also known as profit sharing) contributions cannot be made to a Roth Solo 401k.
Contribution Amount
Designated Roth solo 401k contributions cannot exceed the 402(g) limit, which is $17,500 for tax year 2013.
Catch-up Amount
Lastly, a catch-up contribution of $5,500 may be applied as a Roth solo 401k contribution for tax year 2013, provided the self-employee individual is turns 50 in 2013 or is over age 50. As such, when including the catch-up amount, the self-employee individual can contribute as much as $23,000 for tax year 2013, which applies separately to each business partner or spouse, thus allowing for total Roth Solo 401k contribution of $46,000 for bot solo 401k spouses or partners combined.
IRS Code Sections That Apply
RC § 402A , IRS Notice 2005-95, Treas. Reg. §1.401(k)-1(f)(1), Treas. Reg. §1.401(k)-6, Treas. Reg. §1.401(m)-5, Prop. Treas. Reg. § 1.403(b)-7(a), Prop.Treas. Reg. § 1.403(b)-5(b)(1)