What is a Roth solo 401(k)?

Working for yourself can come with many advantages. One potential disadvantage: You lose access to employer benefits, such as a workplace retirement plan. Fortunately, you have similarly tax-advantaged options for alternatives, including a solo 401(k), which may allow you to elect Roth contributions, depending on your provider.

What is a Roth solo 401(k)?

A Roth solo 401(k) is an optional account within a solo 401(k) plan that lets you make after-tax contributions and enjoy tax-free growth potential and qualified tax-free withdrawals.² This account is also sometimes called a Roth self-employed 401(k), Roth individual 401(k), Roth one-participant 401(k), or Roth owner-owned 401(k).

How does a Roth solo 401(k) work?

A Roth solo 401(k) works similarly to a Roth IRA: You contribute after-tax dollars to a retirement account, and potential earnings can grow tax-free—and may even be withdrawn tax-free, provided you meet a few key qualifications. That said, Roth solo 401(k)s offer significantly higher contribution limits than Roth IRAs, and they don't have income limitations in order to contribute. The individual does have to have income/compensation from the business to participate.

Contributions can be made as both the employee (through salary deferrals), and some plans offer employer Roth contributions as well.

With these types of accounts, you can usually invest in such things as stocks, bonds, exchange-traded funds (ETFs), CDs, mutual funds, and target date funds.

Related: Traditional or Roth account? 2 tips to help you choose

Who’s eligible to contribute to a Roth solo 401(k)?

Anyone who's eligible to sponsor their own solo 401(k) plan can contribute. A solo 401(k) plan may be appropriate for sole proprietors and other small businesses that have no eligible employees other than owners and spouses of the owners. Individuals with corporations, limited liability corporations (LLCs), and partnerships may also be able to establish a solo 401(k), provided there are no common law employees of the business.

Individuals eligible for a solo 401(k) can opt to make Roth contributions, if the plan allows. To do so, they'll need a separate account: a Roth 401(k).

Solo 401(k) contribution limits

Because the Roth solo 401(k) is just a feature of the solo 401(k) plan, the overall contribution limits are the same. But now you get to choose if you want your contributions to be pre-tax or after-tax, or some of each.

To determine how much a self-employed individual or small business owner can contribute based on compensation, try Fidelity's Small Business Retirement Plan Contribution Calculator.

Here's a hypothetical example: Let's say you’re an independent contractor under age 50 with final compensation of $75,000 in 2026. As employee, you could contribute $24,500 to a Roth solo 401(k), and as employer (type of business set to "sole proprietor"), you could contribute $13,940, for a total of $38,440 per the contribution calculator.

You could have an IRA and a solo 401(k) at the same time and contribute to both. However, your deductible contribution to the IRA will be limited by the contributions to the solo 401(k). Those annual contribution limits are separate and don't count against each other. You also could have a 401(k) and a solo 401(k) at the same time, provided you have 2 separate jobs, but you're subject to the employee contribution limit collectively across plans. You could still benefit from getting the employer contribution max from each separate employer for a greater total than if only one employer contributed.

Roth solo 401(k) and taxes

You can contribute after-tax dollars to your solo 401(k) as a Roth contribution. Any potential growth is tax-free, as are withdrawals of this money if you're age 59½ or older and the distribution is made after the 5-year period beginning on January 1 of the first year that you made a Roth contribution to the plan. You must have a triggering event to withdraw from a Roth 401(k).

Talk to a tax professional about how this could impact company taxes.

Roth solo 401(k) advantages

There are many reasons opening a Roth solo 401(k) could be appealing, including the following (note that not all plans allow certain features, so make sure to check with your provider):

• You can make tax-free qualified withdrawals under certain conditions
• There are no income limits in order to contribute
• There are no required minimum distributions (RMDs)
• Employer contributions may be tax-deductible as a business expense
• You can make catch-up contributions starting at age 50 and super catch-up contributions between ages 60 to 63. Catch-up contributions can be made as Roth and have qualified tax-free distributions.
• You may be able to take out a 401(k) loan
• It offers high contribution levels compared to an IRA's limits
• It may offer more investment options than a workplace 401(k) plan

Roth solo 401(k) disadvantages

There are also drawbacks to consider before opening a Roth solo 401(k):

• Employee contributions aren't tax-deductible
• As with any investment vehicle, there's the potential risk of loss if you invest the money in the account
• You're not eligible for the account if you have any employees other than your spouse who works for the business and other business owners, so keep this in mind if you plan to hire personnel
• You may be unable to take early withdrawals without a qualifying triggering event. If your plan does allow early withdrawals as a hardship, they may be unqualified and the earnings could be subject to taxes and penalties. Qualified withdrawals (meaning tax- and penalty-exempt on the earnings) apply in 3 situations: normal (you've reached age 59½), disability, and death, provided you’ve met the 5-year rule.
• If you take unqualified withdrawals before age 59½ or within 5 years of making your first Roth contribution to your plan, the portion attributed to earnings is taxed and possibly subject to a penalty. (Contributions were already taxed; however, you cannot choose to withdraw just contributions.)

Roth solo 401(k) withdrawal rules

To take withdrawals tax- and penalty-free, you must be at least age 59½, disabled, or dead (in which case, a beneficiary would be withdrawing the assets), and the account must meet the 5-year aging rule. If you withdraw earnings without meeting age or account duration requirements, you may be subject to income tax and a 10% early-withdrawal penalty. Withdrawals are subject to pro rata—that is, proportionally splitting contributions and earnings balances.

All withdrawals require that you have a triggering event, usually retirement, plan termination, death or disability. Triggering events can vary by plan. There are certain triggering events that result in exceptions to the early-withdrawal penalty. Check your plan rules to be sure, but you may avoid the early-withdrawal penalty under these circumstances for in-service withdrawal options:

• disability
• qualified birth or adoption of a child (up to $5,000 per child)
• qualified disaster relief
• domestic abuse
• qualified reservist duty (active duty member of the Reserves or National Guard)

Still, you may need to pay taxes on withdrawals for these reasons.

Roth solo 401(k) employee contributions vs. traditional tax-deductible contributions

The main difference between Roth solo 401(k) deferrals vs. traditional deferrals is tax treatment. A Roth solo 401(k)'s contributions are made after taxes have been taken out, allowing for tax-free withdrawals in retirement. A solo traditional 401(k)'s contributions are made pre-tax, thereby lowering taxable income in the year the contributions are made. The saver pays income tax on withdrawals at retirement. With both accounts, though, earnings potentially grow tax-free.

How to open a Roth solo 401(k)

Although exact instructions vary by institution, here’s generally how to open a Roth solo 401(k):

1. Choose a bank, financial services company, or brokerage firm to house your plan, and make sure the plan offers the option to make Roth contributions. It may make sense to open one at the same firm you have other accounts, to stay organized.
2. Check if there are any fees or minimum investments required
3. Check the investment options to make sure they're to your liking
4. Check the features available in the plan for ones you want to have, such as the ability to take a loan or convert assets in your solo 401(k)
5. Follow the provider's instructions for opening an account. You might be able to open it online or via paper application, but you'll likely need to share your personal details.
6. Explore your contribution options

If you're interested in opening a Roth solo 401(k) at Fidelity (there are no account fees or minimums), here's how to do that:

1. Visit Fidelity self-employed 401(k)
2. Select "Open an account"
3. You'll be prompted to log into your account if you're not already logged in. If you don't already have an account, you'll need to fill in personal information to create one.
4. Select that you want to open a new self-employed 401(k) and a Roth self-employed 401(k) account within that plan. Select "Next." Note that if you already have a Fidelity self-employed 401(k), you can add a Roth self-employed 401(k) using the same online process.
5. Follow the instructions and answer the questions on the pages that follow, selecting "Next" to advance to the next page. Make sure to complete the Roth addendum for your files.
6. Review pre-filled fields for accuracy.
7. Make contributions. You may be able to contribute via electronic funds transfer (EFT) from a bank account or from other accounts you may have at the firm or via mobile check deposit.

Note: Consult with a tax professional about when you might be required to file IRS Form 5500 for tax reporting.