Are you attempting to maximize contributions to your retirement savings account? If you’re self-employed, a Solo 401(k) may be an appealing choice for you, and you should certainly maximize it to prepare for retirement years from now. The question is: how much can you contribute to a Roth Solo(k)?
Your Solo(k) will fall into one of two categories: traditional or Roth. The right one for you depends on what you anticipate your income and tax bracket will be in retirement.
A traditional solo 401(k) allows you to make contributions to your account tax-deferred, lowering your overall taxable income in the year when you contribute. Instead, you will pay taxes on the withdrawals you make in retirement. A Roth Solo(k) is the opposite: you pay taxes on the money contributed to the 401(k) right now, but you can make tax-deferred withdrawals in retirement.
A traditional Solo(k) might be the right move if you are in a higher tax bracket now than you will be in retirement. A Roth Solo(k) is a better option for those who believe they will be in a higher income bracket once they reach their golden years.
Annual Roth Solo(k) Contribution Limits for 2024
The good news is that you can contribute more to your Roth solo 401(k) now than you could in years past. The contribution limits have increased to $23,000 for 2024 (up from $22,500 in 2023). If you are age 50 or older, you can make a catch-up contribution of $7,500.
This means you can contribute a total of $30,500 if you are age 50 or older.
Contribution Types
A Solo 401(k) allows for both employee contributions and employer contributions. The employee portion is a salary deferral, meaning you will have to pay taxes on it prior to placing it in the Roth retirement savings account. Only this portion can be designated to go into a Solo 401(k) that offers a Roth option.
On the other hand, the employer contribution is generally made from pre-tax dollars but can be converted to Roth. With the passage of Secure 2.0, employer contributions may be made directly as Roth contributions.
Of course, you also have the option to allocate some of the funds to a Roth Solo(k) and some to a traditional Solo(k). This can be particularly advantageous if you are close to dropping into a lower tax bracket this year and want to contribute just enough to tip you over the edge. Then, the remaining contributions can be made to your Roth Solo(k).
Income Limits
Unlike Roth IRAs, Roth Solo 401(k) contributions do not phase out based on high income. A Roth IRA only allows you to contribute if you have a modified adjusted gross income (MAGI) of less than $146,000 for individuals or less than $230,000 for married couples filing jointly, as of 2024.
The major benefit of a Roth Solo 401(k) is that there are no caps placed on your income in order to contribute. Plus, they have higher contribution limits that make these accounts great for high-income earners who want to start setting aside as much as possible for retirement.
Get Help with Your Retirement Savings
If you’re looking into self-employed retirement plans, setting up a Solo(k) is a fantastic choice for solopreneurs and small business owners. Retire4one can help you set up Solo(k) plans on your own in less than five minutes! We partner with Voya to hold your investments so you get all the bells and whistles that come with an employer account but at a discounted rate.
Does setting up a Solo(k) sound like the right fit for you? Contact Retire4one today to learn more about how our web-based solution can help you save for retirement, or jump right in and get started!