Working for yourself can come with many advantages. One potential disadvantage: You lose access to employer benefits, such as a workplace retirement plan. Fortunately, you have similarly tax-advantaged options for alternatives, including a solo 401(k), which may allow you to elect Roth contributions, depending on your provider.
What is a Roth solo 401(k)?
A Roth solo 401(k) is an option in a tax-advantaged retirement savings plan known as a self-employed 401(k), generally for entrepreneurs and for small business owners with no employees apart from a spouse. This account is also sometimes called a Roth self-employed 401(k), Roth individual 401(k), Roth one-participant 401(k), or Roth owner-owned 401(k).
How does a Roth solo 401(k) work?
A Roth solo 401(k) works similarly to a Roth IRA: You contribute after-tax dollars to a retirement account, and potential earnings can grow tax-free—and may even be withdrawn tax-free, provided you meet a few key qualifications. That said, Roth solo 401(k)s offer significantly higher contribution limits than Roth IRAs, matching the employee contribution maximums of an employer-sponsored Roth 401(k), and they do not have income limitations in order to contribute. The individual does have to have income/compensation from the business to participate.
Contributions can be made as both the employee (through salary deferrals) and as the employer (through profit sharing), depending on your plan.
With these types of accounts, you can usually invest in such things as stocks, bonds, exchange-traded funds (ETFs), CDs, mutual funds, and target-date funds.
Related: Traditional or Roth account? 2 tips to help you choose
Who’s eligible to contribute to a Roth solo 401(k)?
Anyone who is eligible to sponsor their own solo 401(k) plan can contribute. A self-employed 401(k) plan may be appropriate for sole proprietors and other small businesses that have no eligible employees other than owners and spouses of the owners. Individuals with corporations (Corp.), limited liability corporations (LLC), and partnerships may also be able to establish a self-employed 401(k), provided there are no common law employees of the business.
Individuals eligible for a self-employed 401(k) can opt to make Roth contributions if the plan allows, and to do so they will need a separate account: the Roth 401(k).
Solo 401(k) contribution limits
Because the Roth solo 401(k) is just a feature of the solo 401(k) plan, the limits are the same. But now you get to choose if you want your contributions to be pre-tax or after-tax, or some of each.
In 2025, the combined limit for employee and employer contributions is $70,000. As an employee under age 50, the Roth solo 401(k) employee deferral limit is $23,500 (the same limit for traditional and Roth 401(k) plans) or 100% of compensation, whichever is lower.
If you’re already age 50–59, will turn 50 in 2025, or are over 63, you can make an additional catch-up contribution of $7,500 (for a total of $31,000). Individuals age 60–63 may make a super catch-up contribution of up to $11,250 (for a total of $34,750) in eligible plans. The combined employee-employer limit for 50–59 is $77,500 including employee catch-up contribution and $81,250 for employees ages 60–63. Employee contributions are across plans, so if you have another 401(k) plan, some limits apply across both plans.
As employer, you can contribute up to 25% of your compensation each year.
To determine how much a self-employed individual or small business owner can contribute based on compensation, try Fidelity’s Small Business Retirement Plan Contribution Calculator.
Here’s a hypothetical example: Let’s say you’re an independent contractor under age 50 with final compensation of $75,000 in 2025. As employee, you could contribute $23,500 to a Roth solo 401(k), and as employer (type of business set to “sole proprietor”), you could contribute $13,940, for a total of $37,440 per the contribution calculator.
You could have an IRA and a solo 401(k) at the same time and contribute to both. However, your deductible contribution to the IRA will be limited by the contributions to the solo 401(k). Those annual contribution limits are separate and don’t count against each other. You also could have a 401(k) and a solo 401(k) at the same time, provided you have 2 separate jobs, but you’re subject to the employee contribution limit collectively across accounts. You could still benefit from getting the employer contribution max from each separate employer for a greater total than if only one employer contributed.
Roth solo 401(k) and taxes
You can contribute after-tax dollars to your solo 401(k) as a Roth contribution. Any potential growth is tax-free, as are withdrawals of this money if you’re age 59½ or older and the distribution is made after the 5-year period beginning on January 1 of the first year that you made a Roth contribution to the plan. You must have a triggering event to withdraw from a Roth 401(k), similar to a Roth IRA.
Talk to a tax professional about how this could impact company taxes.
Roth solo 401(k) advantages
There are many reasons opening a Roth solo 401(k) could be appealing, including the following (note that not all plans allow certain features, so make sure to check with your provider):
- You can make tax-free qualified withdrawals under certain conditions
- There are no income limits in order to contribute
- There are no required minimum distributions (RMDs)
- Employer contributions may be tax-deductible as a business expense
- You can make catch-up contributions starting at age 50 and super catch-up contributions between ages 60 to 63. Catch-up contributions can be made as Roth and have qualified tax-free distributions.
- You may be able to take out a 401(k) loan
- It offers high contribution levels compared to an IRA, which has a 2025 limit of $7,000, or $8,000 if you’re age 50 or older
- It may offer more investment options than a workplace 401(k) plan
Roth solo 401(k) disadvantages
There are also drawbacks to consider before opening a Roth solo 401(k):
- Employee contributions are not tax-deductible
- As with any investment vehicle, there is the potential risk of loss if you invest the money in the account
- The account can’t be used by anyone without self-employment income
- You’re not eligible for the account if you have any employees other than your spouse who works for the business and other business owners, so keep this in mind if you’re planning to hire personnel.
- You may be unable to take early withdrawals without a qualifying triggering event. If your plan does allow early withdrawals as a hardship, they may be unqualified and the earnings could be subject to taxes and penalties. Qualified withdrawals (meaning tax- and penalty-exempt on the earnings) apply in 3 situations: normal (you’ve reached age 59½), disability, and death, provided you’ve met the 5-year rule.
- If you take unqualified withdrawals before age 59½ or within 5 years of making your first Roth contribution to your plan, the portion attributed to earnings is taxed and possibly subject to a penalty. (Contributions were already taxed; however, you cannot choose to withdraw just contributions.)
Roth solo 401(k) withdrawal rules
To take withdrawals tax- and penalty-free, you must be at least age 59½, disabled, or dead (in which case, a beneficiary would be withdrawing the assets), and the account must meet the 5-year aging rule. If you withdraw earnings without meeting age or account duration requirements, you may be subject to income tax and a 10% early-withdrawal penalty. Withdrawals are subject to pro rata—that is, proportionally splitting contributions and earnings balances.
All withdrawals require that you have a triggering event, usually retirement, termination, death or disability. Triggering events can vary by plan. There are certain triggering events that result in exceptions to the early-withdrawal penalty. Check your plan rules to be sure, but you may avoid the early-withdrawal penalty under these circumstances for in-service withdrawal options:
- disability
- qualified birth or adoption of a child (up to $5,000 per child)
- qualified disaster relief
- domestic abuse
- qualified reservist duty (active duty member of the Reserves or National Guard)
Still, you may need to pay taxes on withdrawals for these reasons.
Roth solo 401(k) employee contributions vs. traditional tax-deductible contributions
The main difference between Roth solo 401(k) deferrals vs. traditional deferrals is tax treatment. A Roth solo 401(k)’s contributions are made after taxes have been taken out, allowing for tax-free withdrawals in retirement. A solo traditional 401(k)’s contributions are made pre-tax, thereby lowering taxable income in the year the contributions are made. The saver pays income tax on withdrawals at retirement. With both accounts, though, earnings potentially grow tax-free.
Alternatives to a Roth solo 401(k)
Again, not all providers offer the following plans:
Roth IRA
A Roth IRA is a retirement account for anyone with earned income within limits. Similar to a Roth solo 401(k), money contributed has already been taxed and qualified withdrawals are tax-free. Roth IRAs share many of the same advantages as Roth solo 401(k)s, but IRA contribution limits are significantly lower, and Roth IRA income limits mean some high earners can’t contribute the full amount to that account.
Roth SEP IRA
A Roth SEP IRA (Simplified Employee Pension plan) is a retirement account for small business owners and the self-employed funded solely by the employer, not the employee (unless you’re your own boss), up to 25% of compensation. Roth SEP IRAs share some of the same advantages as Roth solo 401(k)s, but SEP IRAs don’t allow employee deferrals or loans. Another consideration with SEP IRAs: If you hire employees, you must contribute the same percentage of your employees’ income to their retirement accounts that you do for your own.
Roth SIMPLE IRA
A Roth SIMPLE IRA (Savings Incentive Match Plan for Employees) is a retirement savings plan for the self-employed or small business owner with 100 employees or fewer (who have earned more than $5,000 in the 2 prior years). It features after-tax contributions and tax-free withdrawals at retirement. It shares advantages with Roth 401(k)s, except loans, and employers are required to match employee contributions or make a nonelective contribution. There’s also a 25% penalty on any amount withdrawn within the first 2 years of participation in the employer’s plan.
How to open a Roth solo 401(k)
Although exact instructions vary by institution, here’s generally how to open a Roth solo 401(k):
- Choose a bank, financial services company, or brokerage firm to house your account. It may make sense to open one at the same firm you have other accounts, to stay organized.
- Check if there are any fees or minimum investments required
- Check the investment options to make sure they’re to your liking
- Follow the provider’s instructions for opening an account. You might be able to open it online or via paper application, but you’ll likely need to share your personal details.
- Connect an account, like a bank account, to this account to make contributions
If you’re interested in opening a Roth solo 401(k) at Fidelity (there are no account fees or minimums), here’s how to do that:
- Visit Fidelity self-employed 401(k)
- Click “Open an account”
- You’ll be prompted to log into your account if you’re not already logged in. If you don’t already have an account, you’ll need to fill in personal information to create one.
- Select that you want to open a new solo 401(k) and a Roth solo 401(k) account within that plan. Click “Next.” Note that if you already have a Fidelity self-employed 401(k), you can add a Roth solo 401(k) using the same online process.
- Follow the instructions and answer the questions on the pages that follow, clicking “Next” to advance to the next page.
- Review pre-filled fields for accuracy.
- Make contributions. You may be able to contribute via electronic funds transfer (EFT) from a bank account or from other accounts you may have at the firm or via mobile check deposit.
Note: Consult with a tax professional about when you might be required to file IRS Form 5500 for tax reporting.
Can you convert assets in a solo 401(k) to a Roth solo 401(k)?
If you already have a solo 401(k), you may be able to convert assets to a Roth 401(k), depending on your provider’s rules. Consult with a tax professional or benefits consultant for your personal situation.