A Roth Solo k combines features of the traditional k with those of the Roth IRA. Like a Solo K Plan, the Roth Solo K Plan is perfect for any self-employed individual or small business owner with no employees. The Roth Solo K Plan contains the same advantages of a Solo k Plan, but as with a Roth IRA, contributions are made with after-tax dollars. The Roth Solo k can offer advantages to self-employed individuals who wish to maximize their ability to generate tax-free retirement savings while receiving the ability to invest in real estate, precious metals, private businesses or funds tax-free and without custodian consent.
A Roth Solo k is perfect for sole proprietors, small businesses and independent contractors such as consultants. The Roth Solo k plan is unique and so popular because it is considered the last remaining legal tax shelter available. There are so many features of the Roth Solo k plan that make it so appealing and popular among self-employed business owners. With a Roth k Plan or Roth k plan sub-account, you can invest your after-tax Roth k Plan funds in real estate, precious metals, tax liens, private business investments, and much more tax-free!
Unlike with a pre-tax k Plan, with a Roth k account, all income and gains would flow back tax-free to your account. In other words, you can live off your Roth k Plan assets or income tax-free. With federal income tax rates expected increase, the ability to have a tax-free source of income upon retirement may be the difference between retiring early or not.
Offset the Cost of Your Plan with a Tax Deduction: By paying for your Solo k with business funds, you would be eligible to claim a deduction for the cost of the plan, including annual maintenance fees. The deduction for the cost associated with the Solo k Plan and ongoing maintenance will help reduce your business's income tax liability, which will in-turn offset the cost of adopting a self-directed Solo k Plan. That is, an employee's elective deferral funds are set aside by the employer in a special account where the funds are allowed to be invested in various options made available in the plan.
The IRS sets a limit on the amount of funds deferred in this way, and includes a "catch up" provision intended to allow older workers to save for their approaching retirement. These limits are adjusted each year to reflect changes in the cost of living due to inflation. Funds within the k account grow on a tax deferred basis. Under a Roth IRA, first enacted in , individuals, whether employees or self-employed, voluntarily contribute post-tax funds to an individual retirement arrangement IRA.
Roth IRA contribution limits are significantly lower than k contribution limits. See k versus IRA matrix that compares various types of IRAs with various types of k s. Under the Roth k , employees may contribute funds on a post-tax elective deferral basis, in addition to or instead of pre-tax elective deferrals under their traditional k plans. An employee's combined elective deferrals whether to a traditional k , a Roth k , or both cannot exceed the IRS limits for deferral of the traditional k.
However, employers' contributions cannot receive the Roth tax treatment. The matching contributions made on account of designated Roth contributions must be allocated to a pre-tax account, just as matching contributions are on traditional, pre-tax elective contributions.