Requirements for Roth 401(k)

Forum|Forum|5 years ago
April 7, 2021
1 reply
0 views

In the Individual and Roth 401(k) Plans section, when I click on the first "Learn More", it says "Unlike individual 401(k) plans, Roth 401(k) plans are for businesses that have employees."

This does not appear to be true according to https://www.forbes.com/sites/jbrewer/2020/07/19/solo-[product key removed]-self-employed-business-owners-a-tax-and-retirement-boost/?sh=82f97bda6274.

Also, my individual 401(k) administrator sets up Roth 401(k) plans for sole proprietors without employees and they know the law in this area very well.

I didn't see anything in Publication 506 (https://www.irs.gov/pub/irs-pdf/p560.pdf) under the "Qualified Roth Contribution Program" section that says that the owner must have employees.

ThomasM125

Level 15

What the sentence means ""Unlike individual 401(k) plans, Roth 401(k) plans are for businesses that have employees" is that the individual 401(k) plan is just for individuals, while the Roth 401(k) plan can be used by an individual and also a business that has employees.

It may have been better worded as ""Unlike an individual 401(k) plan, the Roth 401(k) plan can be used by a sole proprietor and also a business that has employees."

So, a sole-proprietor can set up a Roth 401(k).

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"

jcald1Author

Level 2

It's not just clumsy wording. Their statement is false. I'll send an email to Intuit about this.

dmertz

Level 15

Clearly erroneous. Although the calculations on the Keogh, SEP and SIMPLE Contribution Worksheet are correct (they simply mirror the worksheet from IRS Pub 560), everything in step-by-step mode of TurboTax regarding individual 401(k)s is poorly done and has been that way for many years, despite numerous user requests for improvement that have been largely ignored.