Roth FAQs Part 1: Making Designated Roth Contributions to a Self-Directed Solo 401(k)

As stated on the IRS.gov website, here is some important information regarding Roth contributions to a Solo 401(k). Since these Q&As are on the IRS’s website, they are applicable to several types of employer-sponsored retirement plans, so keep in mind that “employer” and “employee” both refer to the account holder when attributing the information to Self-Directed Solo 401(k) plans. Also, at Nashional Self-Directed, our plans automatically allow for Roth contributions and in-plan Roth rollovers, per the applicable rules and limits.

Look for our Roth FAQs Part 2 post here.

What is a designated Roth contribution?

A designated Roth contribution is a type of elective deferral that employees can make to their 401(k), 403(b) or governmental 457(b) retirement plan.

With a designated Roth contribution, the employee irrevocably designates the deferral as an after-tax contribution that the employer must deposit into a designated Roth account. The employer includes the amount of the designated Roth contribution in the employee’s gross income at the time the employee would have otherwise received the amount in cash if the employee had not made the election. It is subject to all applicable wage-withholding requirements.

The law does not allow designated Roth contributions in SARSEP or SIMPLE IRA plans.

Can I make both pre-tax elective and designated Roth contributions in the same year?

Yes, you can contribute to both a designated Roth account and a traditional, pre-tax account in the same year in any proportion you choose.

Is there a limit on how much I may contribute to my designated Roth account?

Yes, the combined amount contributed to all designated Roth accounts and traditional, pre-tax accounts in any one year for any individual is limited (under IRC Section 402(g)). The limit is $19,500 in 2020 and 2021 ($19,000 in 2019), plus an additional $6,500 in 2020 and 2021 ($6,000 in 2015 – 2019) if you are age 50 or older at the end of the year. These limits may be increased in later years to reflect cost-of-living adjustments.