Solo 401k plan owners can make contributions to their Roth Solo 401k account directly or using the in-plan Roth Solo 401k conversion. This allows plan owners to diversify their tax exposure and to earn tax-free returns on their investments.
Unlike a Roth IRA, anyone can contribute to a Roth Solo 401k regardless of their income. The annual Roth Solo 401k contribution limit is also much higher than the Roth IRA limit.
Another advantage that Solo 401k plan owners have is the option of in-plan Roth Solo 401k conversion. This allows them to convert pre-tax funds from a regular Solo 401k plan into after-tax Roth funds. To learn more about this option, watch this following Solo 401k Quick Tip video:
In-Plan Roth Solo 401k Conversion
With a Solo 401k plan, you are allowed to make direct Roth contribution to a Roth Solo 401k account. This is limited to the salary deferral portion of $24,000 in 2015, including catch-up contribution. If you would like to convert the rest of the Solo 401k fund into the Roth account, you can do so. The amount you would like to convert will be taxed in the year of the Roth Solo 401k conversion. The regular income tax rate would apply. There is no dollar-limit for the Roth in-plan conversion.