Roth Solo 401k vs Roth IRA – Retirement Accounts Contribution Rules
What are the differences between a Roth Solo 401k and a Roth IRA? While both allow Roth contributions- where income taxes are paid before the contribution is made, both have different features and advantages.
Qualifying for a Roth Solo 401k vs. a Roth IRA
An individual can qualify for a Roth Solo 401k if they have self-employment or own a small business without full-time employees.
A Roth IRA does not require an adopting business, but it does have an income limit. If you make over the income limit, you are not eligible for a Roth IRA.
No age limit
The Roth Solo 401k does not have an age limit for making contributions.
There is also no age limit for making contributions to the Roth IRA, as with a traditional IRA. The traditional IRA does not allow contributions once the individual turns 70 ½.
This is not the case for Roth IRA. If you are eligible for a Roth IRA, you can establish it even at the age of 80 and start putting money away. There is also no minimum age requirement for a Roth IRA. A child can establish a Roth IRA as long as they have taxable compensation income.
Differing contribution limits
The Roth Solo 401k allows much larger contributions compared to the Roth IRA.
The Roth Solo 401k contribution limits are set at $17,500 for the year 2013 vs. the $5,500 for the Roth IRA.
Tax-free investment
Both the Roth Solo 401 k and the Roth IRA allow account holders to benefit from tax-free compounding when investing using their Roth tax-deferred account. Those who are younger have an even greater advantage because the longer they keep the investment, the more wealth is accumulated, tax free!
Required minimum distributions (RMDs)
The Roth IRA does not require RMDs to be taken, while a Roth Solo 401k does.
Loan feature
The Roth Solo 401k has a loan feature that allows participants to borrow from their account, tax-free. The Roth IRA does not allow borrowing from the account.
It’s important to know your options. If you are self-employed, you have an amazing retirement savings vehicle available to you in the Roth Solo 401k. With a Sense Financial Roth Solo 401k, you can have checkbook control over your account and the ability to invest into virtually any investment opportunity.
Contact one of our retirement plan experts today for a free consultation (949)228-9394.
Related Terms:
- Roth Solo 401k
- Roth IRA
- Solo 401k vs Roth IRA
- Roth Solo 401 K
- Roth Solo 401k tax benefits