What is a Roth Solo 401(k)?
A Roth Solo 401(k) is a misnomer. There is no separate Roth Solo 401(k) plan. Rather, a Solo 401(k) plan can have a Roth amendment provision. When the amendment is in place, the employee’s contribution can be designated as Roth funds. Taxes would be paid on the amount of the contribution, but future earnings would be distributed tax-free after age 59 ½, like a Roth IRA.
The Solo 401(k) Roth provision dramatically increases allowable Roth contributions and unlike a Roth IRA, there are no income limits on the account owner. However, unlike a Roth IRA, the Solo 401(k) does require minimum distributions of the Roth funds at age 70 ½. This requirement can be eliminated if the Roth Solo 401(k) funds are rolled into a Roth IRA prior to age 70 ½. As with a Roth IRA, Roth Solo 401(k) funds must be held in the plan for 60 months prior to tax-free distribution.