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Key takeaways
- A Roth solo 401(k) allows self-employed individuals and their spouses to make after-tax contributions and grow their retirement savings tax-free.
- Unlike a Roth IRA, a Roth solo 401(k) has no income limits and significantly higher contribution caps.
- Contributions grow tax-free and can be withdrawn tax-free after age 59 ½ if the account is held for at least five years.
- Employer contributions must go into the traditional (pre-tax) portion of the solo 401(k), not the Roth portion.
If you’re a solo entrepreneur, saving for retirement might be the last thing on your mind.
A Roth solo 401(k) plan can help you start saving while offering appealing tax advantages. This retirement plan allows contributions by a business owner and their spouse who is involved in the business.
What is a Roth solo 401(k)?
A Roth solo 401(k) is a special kind of solo 401(k) account that allows participants to make after-tax contributions. The plan is generally limited to one-person businesses, though spouses are also eligible to participate.
The biggest benefit is that the contributions can grow on a tax-free basis and then be withdrawn tax-free after age 59 ½, so long as the account has been open for at least five years. So if you use a Roth solo 401(k), you’ll never have to pay taxes again on your contributions and earnings.
Contribution limits
A Roth solo 401(k) offers the same contribution limits as a Roth 401(k) with a normal employer.
- For 2025, the contribution limit is $23,500. Those who are age 50 and over can make a $7,500 catch-up contribution in 2025, and those 60-63 can make a higher catch-up contribution of $11,250 in 2025.
- As the employer, you can also make a profit-sharing contribution of up to 25 percent of your compensation, bringing your total limit to $70,000 in 2025 (or more if you’re eligible for the catch-up). Employer contributions, however, must be made to a traditional solo 401(k) account, not the after-tax Roth portion of the account.
It’s important to note that employee contributions across all your 401(k) accounts cannot exceed the annual cap.
But even if you’ve hit that limit, you could still make an employer contribution to your Roth solo 401(k), if you have profits from your side gig, up to the combined annual limit there ($70,000 in 2025, for those under age 50). That also includes any matching funds from a main employer.
Who should consider opening a Roth solo 401(k)?
A Roth solo 401(k) can be an excellent option for self-employed individuals, but it’s especially useful for specific financial situations and long-term goals. Below is a breakdown of who gets the most mileage out of a Roth solo 401(k) and why.
- High earners who want Roth benefits without income limits
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With a Roth IRA, if you earn too much money, you’re phased out or locked out entirely. A Roth solo 401(k) has no such limits. If you’ve got a side hustle or full-time self-employment income, you can contribute regardless of how much you earn from other sources.
- People who want to front-load retirement savings while taxes are low
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If you believe your current tax rate is low compared to what it will be in retirement — either because your income will go up, tax laws will shift or both — paying taxes now on Roth contributions can be a smart long-term move. This is especially attractive for younger entrepreneurs who are still in a lower tax bracket.
- Spouses who work in the business
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If your spouse actively works in your business, they can open their own Roth solo 401(k). That means you can double your household contributions — potentially hitting the combined cap of $140,000 in 2025 (plus any catch-up contributions, if you’re 50 or older). This can supercharge your household’s retirement savings.
- People looking to avoid required minimum distributions (RMDs)
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Unlike traditional 401(k)s, Roth 401(k)s don’t have required minimum distributions starting at age 73. Roth accounts aren’t subject to RMDs during your lifetime, allowing your money to grow untouched for even longer.
- Entrepreneurs who want full control
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Solo 401(k)s give you much more flexibility than employer plans or even IRAs. You can choose your own investments, set your own contribution levels year-to-year and manage everything yourself.
Whether contributing to the Roth option makes sense for you depends on your overall financial situation, including your current tax bracket and how much you already have saved in Roth versus traditional retirement accounts. A financial advisor can help you work through the options.
Eligibility requirements for Roth solo 401(k)
To open and contribute to a Roth solo 401(k), you must have self-employment income. That includes sole proprietors, freelancers, independent contractors and single-member LLCs.
Your business can’t have full-time employees other than you and your spouse. If you hire even one full-time employee (besides your spouse), you’re disqualified from using this plan.
Business partners can also each set up a separate Roth solo 401(k), as long as the business doesn’t have any full-time non-spouse employees.
Roth solo 401(k) and taxes
Employee contributions to a Roth solo 401(k) are made with after-tax dollars. That means you don’t get a tax break when tax time rolls around — but your money grows tax-free and can be withdrawn tax-free if you meet the age and holding requirements.
Employer contributions you make to yourself are pre-tax and go into the traditional solo 401(k) portion. These contributions reduce your business’s taxable income, giving you a current-year tax break.
Distributions from the Roth portion are tax-free if taken after age 59½ and after the account has been open for five years. Traditional solo 401(k) withdrawals, including employer contributions, will be taxed as regular income when withdrawn in retirement.
Comparison of Roth solo 401(k) and solo 401(k)
Both versions of a solo 401(k) let you save the same amount for retirement each year. Tax treatment is what really sets them apart.
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With a traditional solo 401(k), your contributions are pre-tax. You get a tax break now, but you’ll owe income taxes on withdrawals in retirement. This works well if you’re in a higher tax bracket now and expect to be in a lower one later.
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With a Roth solo 401(k), contributions are made after-tax. You don’t get the deduction today, but withdrawals are tax-free in retirement. This is ideal if you expect to earn more later or want to hedge against future tax hikes.
You can also split your contributions between the two, giving you tax diversification.
Other small business retirement plans to consider
Other small business retirement plans offer a variety of features that may meet your needs better than a Roth solo 401(k).
Bottom line
For those who are self-employed in a one-person business, a solo 401(k) can be an excellent retirement plan. A Roth solo 401(k) offers higher contribution limits than a Roth IRA without the income limitations that accompany a Roth IRA. For those who are self-employed and want to contribute to a Roth account, a Roth solo 401(k) can be a solid option to consider.
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