Retirement planning

What is a Roth solo 401(k) and who should open one?

A Roth solo 401(k) is a retirement program that lets business owners and their spouses who work for the company make deposits. Additionally, any company partners and their spouses who are involved may contribute to their own Roth solo 401(k) plans. The plan is often only available to one-person firms, though spouses and business partners are also permitted to join.

For individuals who qualify, the Roth solo 401(k) offers several wonderful advantages.

A Roth solo 401(k): What Is It?

An exclusive variety of solo 401(k) account called a Roth solo 401(k) permits individuals to make after-tax contributions. If the account user satisfies certain requirements, such as turning 59 12 years old and keeping the account open for at least five years, the largest benefit is that the contributions can grow tax-free and subsequently be withdrawn tax-free at retirement. Therefore, if you use a Roth single 401(k), neither your contributions nor your gains will ever be subject to taxation again.

Similar to the Roth 401(k) option in a standard employer-sponsored 401(k), a solo Roth 401(k) operates (k). Additionally, up to specified limits, employees can combine and contrast Roth and regular contributions.

The contribution limits for a Roth solo 401(k) are the same as those for a Roth 401(k) with a regular employer. This cap is $20,500 for 2022, and individuals 50 and older are eligible to make a $6,500 catch-up contribution. In addition to the additional catch-up for older savers, the employer may contribute profit-sharing contributions to the plan on behalf of participants, raising the total annual contribution cap to $61,000.

Employer contributions, however, cannot be made to the after-tax Roth part of a solo 401(k); rather, they must be made to a standard solo 401(k) account.

Employee contributions are not restricted to the 25 percent cap as they are with other plans, which is a significant distinction between the Roth solo 401(k) plan and other self-employed retirement plans. Employee contributions are allowed up to the yearly maximum under the Roth solo 401(k). For instance, if you run a side business and only make $16,000 from it each year, you may stash it all away in a Roth single 401(k). With other plans, you might only be allowed to contribute $4,000, so the single 401(k) offers a significant advantage (k).

It’s vital to remember that employee contributions combined across all of your 401(k) accounts cannot go over the yearly ceiling, which will be $27,000 for employees over 50 and $20,500 for those under 50 in 2022. Even if you’ve reached that cap, if you still have income from your side business, you may still be able to contribute to your Roth solo 401(k) up to the combined annual cap there ($61,000 for individuals under 50 in 2022), which also includes any matching contributions from a primary employer.

If the custodian through whom the plan was formed permits the Roth option, you may be able to access a Roth solo 401(k).

Who ought to think about starting a Roth solo 401(k)?

For a self-employed person or an eligible spouse who wants to contribute more to a Roth account than would be permitted with a Roth IRA, a Roth solo 401(k) can be a great alternative. The Roth solo 401(k) also does not have income restrictions that limit or forbid individuals from making contributions, unlike a Roth IRA.

When a person leaves the company that sponsors their solo 401(k) account, they can convert their Roth solo 401(k) to a Roth IRA to avoid having to start taking required minimum distributions at age 72.

The individual’s total situation, including their tax condition and the amount they have between Roth and traditional retirement accounts, will determine whether or not contributing to the Roth option makes sense.

Consider other small company retirement plans

Different characteristics offered by other small business retirement plans may be suitable for small firms’ needs.


A SEP IRA is a particular kind of IRA plan for small enterprises that permits both employee and business owner contributions. Up to a cap of $61,000 or 25% of the employee’s compensation, whichever is smaller, the contributions are provided completely by the employer. Given that business owners must contribute the same percentage for the employees as they do for themselves, SEP IRAs can actually be expensive if there are many employees.

Unfortunately, a Roth option is not available with a SEP IRA.


A SIMPLE IRA is a small business retirement plan that can only be used by organizations with less than 100 employees. The fact that there is little paperwork for the business owner makes this choice particularly appealing. In 2022, employees may contribute up to $14,000 to a SIMPLE IRA, with an additional $17,000 allowed for individuals who are 50 years of age or older. Additionally, businesses must pay a mandated contribution of up to two percent of the salaries of all employees, or fully match employee contributions up to a maximum of three percent of salary.

Self-employed people can also utilize SIMPLE IRAs. Within the first two years of the plan’s opening, there are limitations on rolling a SIMPLE IRA over.

A Roth option is not available with a SIMPLE IRA.


An IRA is a choice to be taken into account on its own or in conjunction with a small business retirement plan. Your income will determine whether or not you are eligible to make contributions to a Roth IRA. However, even if an IRA is non-deductible, you can still benefit from it as long as you have earned income.

To sum up

A solo 401(k) can be a great alternative for people who work for themselves as a sole proprietor. Compared to a Roth IRA, a Roth solo 401(k) offers higher contribution limits without the income restrictions that come with a Roth IRA. A Roth solo 401(k) can be a good alternative to take into consideration for people who are self-employed and want to make contributions to a Roth account.

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