Cambyses Financial Advisors LLC

New Retirement Product and Service - Solo Roth 401(k)

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Beginning in late January (2024) Cambyses will offer a Solo Roth 401(k) option through our custodian.

 

A Solo Roth 401(k) allows active business owners (including active partners and members) and their active spouses to contribute after tax dollars to the retirement plan. The Solo Roth 401(k) targets active businesses whose only active employees [*1] are their principles and their spouses.

 

Participants get no deduction for contributing to a Solo Roth 401(k), but  deposits to the plan grow tax free and can be withdrawn tax free on retirement (provided the participant meets age requirements and the plan meets holding period requirements).

 

The 2024 contribution limit for a Solo Roth 401(k) is $23,000. If you are age 50 or older you can contribute an additional $7,500. Unlike a Roth IRA, there is no percent-of-income limit for a Solo Roth 401(k). You may contribute your entire earnings (plus the age enhancement) to a Solo Roth 401(k).

 

Your employer [*1] may make matching or discretionary contributions if they maintain a “traditional” Solo 401(k) Plan [*2] as well as the Solo Roth 401(k).  For 2024, the combined limit for employee and employer contributions is $69,000 or 100% of employee compensation, whichever is lower. Workers aged 50 and over can add a $7,500 catch-up contribution for a total of $76,500.

 

A Solo Roth 401(k) is treated very much like a Roth IRA – except that it has higher contribution limits (2024 limits for Roth IRAs are $7,000 for those under age 50 and $8,000 for those aged 50 years of age or older), and the contribution limit is not eroded for high income taxpayers. Similar to a Roth IRA, there is no Required Minimum Distribution from a Solo Roth IRA: account holders are free to adjust distributions as circumstances and their requirements dictate.

Solo Roth 401(k) plans add another option to business owners’ employee retention, retirement, and succession arsenal.

Solo plans, including Solo Roth 401(k) plans, are tightly focused on “family” businesses (with few, or no, employees who have no ownership interest). Cambyses offers an array of retirement plan options for both family firms and those with multiple employees. 

 

Business owners may contact Steven at +1 (818) 489-4228 or Steven@CambysesAdvisors.Com to evaluate their (and their employees’) Retirement Plan opportunities – Including whether a Solo Roth 401(k) is appropriate to their needs.

 

[*1] Used in this context “employer” or “employee” refers to sole proprietors, partners, members, C- or S- corporation employees and their spouses who are a) active in the business (provide meaningful services to the business), and b) the only employees or active participants in the business.

 

[*2] The Solo Roth 401(k) is technically a discretionary plan within the Solo 401(k) – a nuance that makes sense only to regulators and tax practitioners.