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| Roth 401(k) for the Self-Employed |
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Under tax rules that took effect in January 2006, it’s possible to save part of your wages in a Roth 401(k) account that is included your Self Employed 401(k) plan.
Unique to Roth accounts – Roth 401(k) and Roth IRA – it’s possible to save part of your wages on an after-tax basis. In exchange, the money that’s in the Roth accounts can grow tax-free and stay tax free. That’s right! The principal and accumulated earnings in a Roth account can be withdrawn tax-free, provided that certain qualifications are met.
By contrast, contributions to a traditional IRA, 401(k), etc, are on a pre-tax basis but withdrawals of every dollar in these traditional accounts are taxed as ordinary income.
The self-employed, independent contractors and other business owners with no employees can get a Roth 401(k) as a built in feature in their Self Employed 401(k) plan – (also known as Solo 401k). Fill out request form to receive a Free information kit on the Solo-401k
Self-Employed 401k contributions can be split between the pre-tax account and the Roth after-tax account. However, the aggregate contributions must not exceed the elective deferral limit. Profit sharing or employer contributions can be made to a Self-Employed 401(k) on a pre-tax basis. |
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| A Roth 401(k) would appeal to: |
- Those who believe that their tax rate will be higher in the future.
- Those who are likely to accumulate substantial gains in their account over time and are seeking to keep those gains tax-free.
- Those wishing to pass retirement funds tax-free to their heirs.
- High income individuals that do not qualify for the Roth IRA.
The Roth feature of the Self-Employed 401(k) plan is another tool to help small business owners tailor their investments to their specific needs. Owners should ask their accountants about this plan and how it may benefit them. We invite you to request a free information kit on the Self-Employed or Solo 401(k) that includes the Roth and loan features. |
| Verify your contribution amounts as well as obtain tax advice from your tax advisor. |
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