New Roth Solo 401K and the 5-Year Rule

Submitted by Larry Bell on Fri, 2016-12-09 13:04

I am over 71, and I opened a new Roth solo 401K this year. The first deposit happened on April 19th. I didn’t file my 2015 tax return until May of 2016. Does the 5-Year Rule clock start on 1/1/15 or 1/1/16 in my case? In other words, is the April 15th date a hard date, or may it be extended until I actually file my tax return?



Submitted by Alan - IRA critic on Fri, 2016-12-09 16:50

The solo K had to be established no later than 12/31/2015 to be eligible for 2015 contributions. But the actual contributions must be made by the tax due date OR the extended due date if you filed a timely extension by the due date. 4/19 therefore would be too late unless you filed a timely extension. The Roth 401k holding period begins January 1st of the tax year the contribution is for, but an excess deferral does not start the holding period. This may have to be a 2016 contribution for which the holding period starts 1/1/2016. Remember that the solo Roth will have RMDs, so if the plan allows you to roll out the balance to a Roth IRA before year end, you can avoid the RMD. You had no balance on 12/31/2015 so there is no 2016 RMD.

Submitted by Larry Bell on Mon, 2016-12-12 17:23

So, since I filed a timely extension before April 15, then are you saying that the clock started 1/1/15?

Submitted by Alan - IRA critic on Mon, 2016-12-12 17:53

Yes, the 5 year clock starts on 1/1 of the year FOR WHICH you made your first contribution. You contributed for 2015, so the clock started on 1/1/2015. Of course, this assumes that you established the plan on time, but your contribution itself WAS made on time.

Submitted by David Mertz on Fri, 2016-12-09 17:18

  • The regular due date was April 19, 2016 in Maine an Massachusetts, so if you live in one of these states, you met the deadline without needing to request an extension.
  • Also note that your election to make an employee contribution to the Roth 401(k) is required to have been made by the end of the tax year to which it applies, so it would be a good idea to have documented that election.
  • Your employer contribution, if any, can only be made to the traditional account in the 401(k).

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