Funding a new Self-Directed Solo 401K from my current Roth IRA

 I have a question about funding a new Self-Directed Solo 401K (a/k/a Solo 401k, Solo K, Individual 401k) from my current Roth IRA. I read on your website that you cannot roll Roth funds into a Self-Directed Solo 401K. Is this also true if I contributed to the Roth on an after-tax basis? If so, is there any way to "restate" the Roth to a traditional IRA in order to allow it to be rolled into a Solo 401K, or are these funds simply off limits?

Thanks for any information.

K. Wagner

Correct the 401k regulations do not currently allow for the rollover of Roth IRA funds to a Self-Directed Solo 401k; however, the regulations do allow for Roth Solo 401k contributions, up to $17,000 for tax year 2012, plus an additional catch-up amount of $5,500 for those age 50 or older in 2012. Of course, just like Roth IRA contributions, Roth Solo 401k contributions are not tax deductible bu the contributions and earnings grow tax free. It's my understanding that all contributions to Roth IRAs are made up of after-tax contributions--that is,  contributions consist of post-tax funds. Therefore, they are restricted from being transferred to Solo 401k.

If you processed a Roth IRA conversion--a reportable and taxable movement of assets from a Traditional IRA to a Roth IRA, you can recharacterize back to a Traditional IRA but only if processed by October of the year following the date that the Roth conversion was processed, provided you filed for tax return extension.

On the other hand, if you made a Roth IRA annual contribution, the deadline to recharacterize the contribution for a tax year is your tax return due date, plus extensions. The IRS provides a six-month extension of the recharacterization deadline for taxpayers who timely file their federal income tax returns. 

Lastly, keep in mind that you can only Open Solo 401k if you are self-employed with no full-time employees, and in order to make a Solo 401k contribution, you must have compensation from self-employment in the trade or business for which the Solo 401k was opened.