Your Roth Solo 401k is already included as a sub-account of the Solo 401k we set up for you so this will be easy to do!
Most clients will do 1 of 2 things with their Roth funds…
Convert existing Solo 401k funds to Roth and/or
Make Roth contributions
Let’s cover them both!
In-Plan Roth Conversions
Converting existing Solo 401k funds to Roth is easy. Your Solo 401k plan already includes a Roth sub-account.
This is called an in-plan Roth conversion and was made allowable by a 2010 amendment that we have included in our plan documents to provide you the greatest flexibility while maintaining strict adherence to the IRS rules. Both plan participants (you and your spouse) can do a Roth conversion in the Solo 401k.
Converting existing Solo 401k funds to Roth means there will be some taxes due, just like any other Roth retirement plan.
You have access to our vetted and trained network of great CPAs to make calculating your taxes straightforward. First, decide how much of the funds you want to convert. Then, have your CPA and/or tax preparer calculate the tax payable on your conversion. Your CPA will also fill out form 1099-R, which documents a taxable distribution.
The Roth Solo 401k funds conversion is not subject to the 20% taxable withholding like a regular distribution, but form 1099-R must still be completed and filed to document the funds conversion.
Your Solo 401k documents include in-plan Roth Conversion forms, so it’s easy to document your Roth conversion.
Use our contribution calculator at solo401k.com/calculator to determine your contribution amount. Roth contributions must come from your business income, just like pre-tax contributions.
All of our Solo 401k accountholders are given a contribution guide to walk you through how to determine and document your contributions.
Step 1: Determine your Roth Contribution amount
Step 2: Have your bookkeeper and/or CPA document the contribution in your business and 401k plan internal notes and records
Step 3: Deposit your Roth contributions into your Solo 401k trust bank account
Keep it clean:
It’s possible to have one bank account for all of your Solo 401k funds (both pre and after tax). Make sure your CPA is keeping excellent records to keep track of which funds are Roth and which are pre-tax contributions.
Some accountholders will maintain two separate bank accounts for ease of bookkeeping: 1 for Roth funds, 1 for pre-tax funds. Do what works for you and your CPA to make record keeping easy, and keep the books clean!