There's a good chance you set up and funded the Roth portion of your Solo 401k to take advantage of tax-free gains for your retirement future.

But did you know the Roth Solo 401k also has required minimum distributions (RMDs)?

Please seen an excerpt below from the IRS website:

 (SOURCE)


Is there any way to avoid RMDs on the Roth portion of my funds?

Yes.

What some accountholders do is establish a Roth IRA five years (or more) before the Required Minimum Distributions begin. That way, you can roll funds from the Roth 401k into the Roth IRA, keep the funds as Roth and avoid paying Required Minimum Distributions on the Roth funds.

Let's look at an example:

Steve is 62 years old and planning ahead for his future. He's been contributing funds to the pre-tax and Roth portion of his Solo 401k and Roth Solo 401k.

Steve knows at age 70.5 he'll have to start taking RMDs, even on his Roth funds. 

So, at age 63 Steve decides to open a self-directed Roth IRA with help from the Nabers team.

Steve does a small rollover from his Roth 401k to his Roth IRA to begin the 5-year clock on the Roth IRA. As the years go on, Steve rolls out all the Roth 401k funds to his Roth IRA.

By the time Steve reaches age 70.5, he has his Roth 401k funds rolled into the Roth IRA and the "5-year rule" for having established his Roth IRA is up. His Roth IRA is "seasoned" to 5-years and he can begin taking tax-free distributions on his contributions and his gains on his schedule.

Steve will end up with $0 in his Roth 401k portion and the funds sitting in his Roth IRA. Steve still has to pay Required Minimum Distributions on the pre-tax funds, but he doesn't have to distribute anything from his Roth 401k funds as those have been rolled into his Roth IRA.

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