Individual Roth vs Solo Roth 401(k) sanity check

[kgtest]

So I have access to both my individual Roth IRA and my Solo Roth 401(k) through Vanguard.

My question is, is it true I can contribute $20,500 this year into my Solo Roth 401k vs the $6,000 contribution limit for an Individual Roth?

I have only contributed to my individual roth so far and that contribution limit on the Solo Roth 401k seems pretty high for what I am accustom to.

I also understand some of the differences are that I would not be allowed distributions on Solo 401k roth until 59.5 vs the 55 rule with the individual Roth IRA, and I could also take a loan out against my Solo Roth 401(k) if I really wanted to.

Maybe I need to do a TurboTax what-if and see if this is actually plausable.

Then, as me being my own employer, I could also match my Solo Roth 401k $20,500 contribution, but THAT money would actually go into the REGULAR 401k.

Am I missing anything?

 

[NgineER]

Hey KG - I think you have it down correctly, and I think there some additional benefits also.

If your wife is also an employee of the company, she could also contribute to her Roth account. You can also provide an employer contribution of up to 25% of compensation or net profit, if it is just you I believe it is 20% of the net profit.

If you have a 401k plan through your regular W-2 job, then you can only contribute to the maximum between the two plans.

Another wrinkle or opportunity. If you choose to not do either employee or employer contributions you could contribute up to $61,000 as an after-tax contribution, which can be rolled into a Roth IRA. 10x the standard Roth IRA contribution!

 

[Out-to-Lunch]

There is no Rule of 55 for Roth IRAs. However, you can always withdraw the contributions tax- and penalty-free, even before 55.

 

[kgtest]

There is no Rule of 55 for Roth IRAs. However, you can always withdraw the contributions tax- and penalty-free, even before 55.

Really?

That I did not know! Here I always thought you needed to wait until you were 55. And I read today online that you need to wait until 59.5 with the 401k Roth.

This is what fool.com stated:

Roth 401(k) rules allow you to make "qualified," or penalty-free, withdrawals of both contributions and gains any time after age 59 1/2 as long as your first contribution to your account was at least five tax years earlier.
While you are required to take required minimum distributions (RMDs) from a Roth 401(k), you may be able to get around this rule by doing a rollover from a Roth 401(k) to a Roth IRA.


EDIT: Ahhh you said CONTRIBUTIONS! GOT IT!!

 

[Sunset]

How much you can put into your solo 401k in total does depend upon your net income level (for the business).

You can then put what you want into the Roth for the employee portion, and what you want into the IRA for the employer.

You can ALSO contribute to the individual ROTH the employee has (~$7,000 max).

The limits if you have lots of earnings go pretty high:
https://www.solo401k.com/contributions/2021-solo-401k-contribution-limits/
"Contribution limits to a Solo 401k are very high. For 2021, the max is $58,000 and $64,500 if you are 50 years old or older."

I have a Vanguard one, and used their calculator to figure out how much I could put in. It was extremely close to HRBlock number , difference probably due to rounding. I just put in $5 less than the max to be safe.

 

[Aerides]

I have a Vanguard one, and used their calculator to figure out how much I could put in. It was extremely close to HRBlock number , difference probably due to rounding. I just put in $5 less than the max to be safe.

Fido has a similar setup and I use their calculator. I do it at tax time as first I need to know the true business earnings to calculate the right amount.

 

[kgtest]

How much you can put into your solo 401k in total does depend upon your net income level (for the business).

You can then put what you want into the Roth for the employee portion, and what you want into the IRA for the employer.

You can ALSO contribute to the individual ROTH the employee has (~$7,000 max).

The limits if you have lots of earnings go pretty high:
https://www.solo401k.com/contributions/2021-solo-401k-contribution-limits/
"Contribution limits to a Solo 401k are very high. For 2021, the max is $58,000 and $64,500 if you are 50 years old or older."

I have a Vanguard one, and used their calculator to figure out how much I could put in. It was extremely close to HRBlock number , difference probably due to rounding. I just put in $5 less than the max to be safe.

Right its 25% of your reported earnings, not to exceed $61k total in 2022.

So lets say 2022 reported earnings are 200k.

Max amount would be $50k

I (employee) contribute:
$20,500 into 401k Roth

Employer (also me) matches:
$20,500 into 401k

And remainder 51k - 41k =
9k into 401k.

I think I got it figured out.

 

[kgtest]

Can I contribute the max $20,500 to a Solo 401k ROTH AND the $6,000 to my own personal roth, or is that out of the question.

EDIT to add, I answered my own question.

Contributing to both
Contributions to a Roth 401(k) and the Roth IRA do not
affect each other. Therefore, an individual can make
the maximum contribution amount to both accounts if
eligible.

 

[NgineER]

If your plan allows for voluntary after tax contributions you can contribute $61k to that and then roll it over to a Roth IRA.

 

[NgineER]

It would all count as contributions after the roll over and it would be available at your target of 55 without penalties.

 

[still_working]

Can I contribute the max $20,500 to a Solo 401k ROTH AND the $6,000 to my own personal roth, or is that out of the question.

EDIT to add, I answered my own question.

Contributing to both
Contributions to a Roth 401(k) and the Roth IRA do not
affect each other. Therefore, an individual can make
the maximum contribution amount to both accounts if
eligible.

I'm not familiar with the term Solo 401k Roth, but in my situation I do contribute max allowable into my employer's 401k ($20,500 - some Roth, some traditional), receive employer match (traditional, subject to the max overall 401k contribution limit of $58k) and additionally contribute to an IRA up to the max allowable $6,000.

 

[Sunset]

......
You can ALSO contribute to the individual ROTH the employee has (~$7,000 max).

......

Can I contribute the max $20,500 to a Solo 401k ROTH AND the $6,000 to my own personal roth, or is that out of the question.

EDIT to add, I answered my own question.

Contributing to both
Contributions to a Roth 401(k) and the Roth IRA do not
affect each other. Therefore, an individual can make
the maximum contribution amount to both accounts if
eligible.

Yes. (depending on age the max allowed differs)