What Is A Roth Solo 401k? (2025 Update)

Looking to open a Solo 401k plan? Get started today – The Carry Solo 401k Plan is a featured-packed self-directed account that lets you invest in both traditional and alternative assets, take out a loan, or do a Mega Backdoor Roth conversion.

Thinking about adding tax-free growth to your retirement strategy but still want the high contribution limits of a Solo 401k? A Roth Solo 401k could offer that balance.

This guide explains what a Roth Solo 401k is, how it works in 2025, and what to consider if you’re self-employed or running a solo business. From eligibility rules to tax treatment and plan setup, we’ll walk you through the key features to help you understand whether this option aligns with your long-term goals.

What Is a Roth Solo 401k?

When you open a Solo 401k plan, many plan providers set up two separate accounts: a Traditional (pre-tax) Solo 401k and a Roth (post-tax) Solo 401k. Each account has its own tax treatment and potential benefits.

✅ The Traditional Solo 401k allows you to defer taxes until retirement. Contributions may be deductible, but withdrawals in retirement are taxed as ordinary income.

✅ The Roth Solo 401k works differently. Contributions are made with after-tax income, so they are not deductible. But if certain conditions are met, qualified withdrawals in retirement are entirely tax-free.

The Carry Solo 401k Plan offers a Roth option, with fully managed set up and tax filings. Learn more.

Roth Solo 401k Eligibility

A Roth Solo 401k is a feature within a Solo 401k plan, so you must first meet general eligibility rules:  

The last point is an important one. Some providers do not support Roth contributions and may only offer pre-tax accounts. If you want Roth treatment, you’ll need to choose a provider that allows it. 

📌 Compare Solo 401k plan providers that offer a Roth option here.

There are no income limits for contributing to a Roth Solo 401k. Whether you’re earning a small side income or running a high-revenue business, you may qualify as long as your business meets the plan’s requirements.

Under SECURE 2.0, an employee who works at least 500 hours for two consecutive years may now be eligible for plan participation. If that applies, your business would no longer qualify for a Solo 401k and may need to transition to a traditional 401k instead.

Are All Business Entities Eligible?

Yes, all business structures may qualify for a Solo 401k. That includes sole proprietorships, partnerships, LLCs, C corporations, and S corporations. As long as you have eligible self-employment income and no qualifying employees, you may contribute to a Roth Solo 401k regardless of your business entity.

Benefits and Tax Advantages of a Roth Solo 401k

A Roth Solo 401k shares many of the same benefits as a Traditional Solo 401k, but with one key difference—its tax treatment. This account allows you to enjoy tax-free growth and withdrawals, as long as IRS requirements are met.

Key benefits of a Roth Solo 401k include:

✅ Higher contribution limits compared to a Roth IRA

✅ Tax-free compounding on qualified distributions

✅ Broad investment flexibility

✅ Access to participant loans and rollover options

The main advantage is that qualified withdrawals in retirement can be completely tax-free.

✏️ Hypothetical Example: Suppose you contribute $50,000 to a Roth Solo 401k over several years. If your investments grow and the account reaches $5 million by retirement, you could withdraw the entire amount tax-free because the contributions were made with income you already paid taxes on.

In comparison, that same $50,000 contributed to a Traditional Solo 401k would be made with pre-tax income. While it may reduce your taxable income now, the full $5 million would be taxed as ordinary income when withdrawn in retirement.

How Much Can I Contribute Into a Roth Solo 401k?

For 2025, the total Solo 401k contribution limit is $70,000, or $77,500 if you’re age 50 or older. This total includes both employee and employer contributions, each with their own limits.

As an employee, you can contribute up to $23,500, or $31,000 if age 50 or older. These elective deferrals can be made to a Roth Solo 401k, a Traditional Solo 401k, or split between the two.

As the employer, you can contribute up to 25 percent of your compensation, up to the plan limit. Under SECURE 2.0 §604, plan sponsors may now allow employer nonelective or matching contributions to be treated as Roth, if the participant elects and the plan supports it.

This flexibility allows high earners to contribute significantly more to a Roth account than they could through a Roth IRA. For comparison, the 2025 contribution limit for a Roth IRA is just $7,000, or $8,000 if age 50 or older.

📝 Note: The ability to contribute more than three times as much to a Roth Solo 401k is one of its most powerful tax advantages.

📌 Want to contribute even more money into a Roth Solo 401k? Learn about the Mega Backdoor Roth Solo 401k conversion, which would allow you to contribute up to $70,000 entirely into a Roth Solo 401k for 2025.

Contributing to Both Roth and Traditional Solo 401k Accounts

You are not limited to choosing just one type of account. You can contribute fully to either a Roth or Traditional Solo 401k—or split your contributions between both. Some individuals use this approach to lower their taxable income today with pre-tax contributions, while still building tax-free income for retirement through Roth contributions.

Holding both account types can also give you more control over your taxable income in retirement. If your income is high in a given year, you may choose to withdraw from your Roth Solo 401k to avoid additional taxes. In a lower-income year, withdrawing from your Traditional Solo 401k could help you take advantage of a lower tax bracket.

📝 Note: Having both Roth and Traditional Solo 401k accounts gives you flexibility in retirement. You can choose which account to withdraw from based on your tax situation each year.

📌 Also Read: Solo 401k Contribution Limits and Deadlines

Can I Change My Allocations Each Year?

Yes. You are not locked into a Roth or Traditional Solo 401k choice permanently. Each year, you can decide how to allocate your contributions based on your current tax and income situation.

For example, you might choose Traditional contributions this year to help lower your taxable income. If your situation changes next year, you can shift and contribute to your Roth Solo 401k instead. The flexibility to reassess annually is one of the plan’s advantages.

What Can I Invest In With a Roth Solo 401k?

A Roth Solo 401k gives you broad investment control. You can invest in a wide range of assets, from traditional securities to alternative investments. This includes:

✅ Stocks, bonds, mutual funds, and ETFs
✅ Real estate and rental property
✅ Startups, private equity, and private funds

However, the IRS restricts a few specific types of assets. A Roth Solo 401k cannot invest in:
❌ Collectibles (e.g., art, antiques, or stamps)
❌ S corporation stock
❌ Life insurance contracts held primarily for insurance purposes

📝 Note: Life insurance is not completely banned but must be “incidental.” In most Solo 401k documents, it’s excluded to avoid complex compliance rules.

As long as your investment doesn’t fall under a prohibited category, it can typically be held within a Roth Solo 401k.

Can I Invest in Real Estate With a Roth Solo 401k?

Yes. A Roth Solo 401k allows real estate investing, and it can offer significant tax advantages. Rental income and capital gains from real estate held in a Roth Solo 401k grow tax-free. If the property is sold for a profit, none of the gains are taxed—as long as the account meets Roth withdrawal rules.

✏️ Hypothetical Example: A rental property bought through a Roth Solo 401k generates $12,000/year in rent. All rental income and future sale proceeds can stay in your account tax-free. That income can then be reinvested or withdrawn in retirement without tax, if the distribution qualifies.

📝 Note: Personal use of the property is not allowed. Real estate must be used strictly as an investment, and you must follow IRS rules on prohibited transactions.

Roth Solo 401k vs Traditional Solo 401k Plan

The main difference between a Roth Solo 401k and a Traditional Solo 401k is when you pay taxes. The Traditional account is pre-tax. The Roth account is post-tax.

With a Traditional Solo 401k, your contributions may reduce your taxable income for the year. But you’ll pay taxes on withdrawals in retirement.

With a Roth Solo 401k, your contributions are made with after-tax income. You won’t get a tax deduction now, but qualified withdrawals in retirement are tax-free.

✏️ Hypothetical Example: 

If you earn $80,000 and contribute $10,000:

Which approach works best typically depends on whether you prefer to save on taxes now or later in retirement.

Which One Is Better?

There’s no universal answer. The right choice depends on your income, tax bracket, and long-term plans.

Some individuals prefer Roth contributions because tax-free compounding over time can result in significant savings. Others prioritize the upfront tax deduction available with Traditional contributions.

✏️ Hypothetical Example:
Let’s say your Solo 401k grows to $10 million by retirement:

For some, the Roth path offers more long-term benefit. For others, reducing taxes today might be the higher priority. It often comes down to your expected tax bracket now versus in retirement.

When Can You Withdraw?

For both Roth and Traditional Solo 401k accounts, you must wait until age 59½ to take penalty-free withdrawals. Early withdrawals are generally subject to a 10 percent penalty and regular income tax.

Roth Solo 401k accounts also follow the five-year rule. To withdraw earnings tax-free, your first Roth contribution must have been made at least five years ago, and you must be age 59½ or older.

Remember:

Breaking It Down

A Solo 401k plan can include both a Traditional (pre-tax) and a Roth (post-tax) account, depending on your provider.

You can contribute to either—or split your contributions between both. The decision may vary each year depending on your income and tax goals.

If you’re in a high-income year and want a deduction, a Traditional Solo 401k may help lower your tax bill. If you’re focused on building a tax-free retirement fund, Roth contributions could be the better fit.

Wrapping It Up

A Roth Solo 401k can be a powerful tool for self-employed individuals who want to maximize retirement savings while securing future tax-free income. Its high contribution limits, investment flexibility, and long-term tax advantages make it worth considering, especially if you expect your tax rate to be higher in retirement.

As with any retirement plan, the best approach depends on your income, tax outlook, and financial goals. Exploring both Roth and Traditional Solo 401k options may help you build a more balanced strategy over time.

📌 Want to keep learning? Check out our other articles for more Solo 401k insights, contribution rules, and tips:

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