Individual Roth 401k
The Individual 401k contribution limit in 2010 and 2011 is $49,000 or $54,500 if age 50 or older. The annual contributions into a Individual 401k consists of 2 parts a salary deferral contribution and a profit sharing contribution.
Roth 401k Salary Deferral
Participants in a Individual 401k have the option to make Roth 401k contributions only with the salary deferral portion of the Individual 401k. In 2010 and 2011 the Roth 401k salary deferral contribution limit is $16,500 and $22,000 if age 50 or older. Individual Roth 401k salary deferral contributions are not tax deductible, but withdrawals are tax free after age 59 provided the 5 year rule is satisfied.
Profit Sharing
A profit sharing contribution of up to 25% of compensation can also be made into a Individual 401k. The profit sharing portion of the Individual 401k contribution is not eligible to be made as a Roth contribution. Profit sharing contributions are made pre-tax and are tax deductible.
Note: The combined 2010 and 2011 salary deferral and profit sharing contributions in a Individual 401k cannot exceed $49,000 or $54,500 if age 50 or older.
Roth 401k versus Traditional 401k comparison
| Roth 401k (after tax contributions) | Traditional 401k (pre-tax contributions) | |
| Maximum annual contribution (under age 50) | $16,500 - 2010 / 2011 |
$16,500 - 2010 / 2011 |
| Maximum annual contribution (age 50 or older) | $22,000 - 2010 / 2011 |
$22,000 - 2010 / 2011 |
| Tax treatment of contributions | After tax (not tax deductible) | Pre-tax (tax deductible) |
| Tax treatment of distributions | Distributions are tax free if five years have passed since the first contribution AND there is a qualifying event (attainment of age 59½, death or disability) | Distributions are taxed as ordinary income and can be withdrawn after age 59 ½ without IRS penalty. |
| Required minimum distributions (RMDs) | Must begin at age 70½ unless rolled to a Roth IRA. If rolled over to an Roth IRA then the money is not subject to RMD rules until the death of IRA owner | Must begin at age 70½ |
| Rollovers | Can rollover to another Roth 401k or a Roth IRA | Can rollover to another traditional 401k or a Traditional IRA or Rollover IRA |
Learn more about the Individual Roth 401k.