- QUESTION: Does a Roth Solo401K get subject to a separate 5 year time line distinct from the Roth IRA accounts which I already have had for more than 5 years? In other words, does it start its own 5 year clock?
Therefore, if you currently don’t have any Roth 401(k) money in the existing solo 401(k), the five-year clock would start in 2019 provided that you make a Roth 401(k) contribution or conversion by the end of 2019. Reason being, the 5 year Roth 401k clock starts as of January 1 of the year the first Roth 401k contribution or conversion is made regardless of when in the year it was processed.
- QUESTION: I understand the Solo401K conversion must be done before year end, but that a non-Roth solo401K can be funded up until the return filing deadline in April. Given that, is it reasonable to assume that if one is shooting for to target an exact level of AGI, and they didn't know their exact business earnings until say March, they could do a Roth Solo401K conversion in December to overcompensate, then undo a certain amount of it by making a Solo401K contribution in April, after they know the exact numbers?
ANSWER: You are correct that the conversion is reported in the year that the funds are actually moved from the pretax solo 401(k) account to the Roth solo 401(k) designated account. What is more, you are allowed to process partial in-plan conversions. You could process a partial conversion in 2019 and subsequent ones in 2020. It is best not to contribute to the Roth solo 401(k) in advance if you don’t know for certain that you’re going to have the earned income to justify the contribution.