While not all solo 401k of full-time employer 401k plans allow for voluntary after-tax contributions, those with owner-only businesses should seriously consider opening a solo 401k that allows for voluntary after-tax contributions. Unlike full-time employers where the employer decides to allow or not to allow for their 401k plan to receive after-tax contributions, the same is not true of owner-only businesses. As the owner of your business, you have a say in participating in a solo 401k plan that allows for voluntary after-tax contribution in addition to Roth contributions.
What is a solo 401k voluntary after-tax contribution? Just as the words imply, voluntary after-tax contributions are made from earned income that is subject to taxes, so you cannot deduct the contribution on your personal or business tax return. Because the earnings on the voluntary after-tax contributions are taxable, the account holder will convert the voluntary after-tax contribution immediately to a Roth solo 401k or a Roth IRA.
Do all Solo 401k plans allows for voluntary after-tax contributions? No but you can easily choose a solo 401k plan provider that does allow for voluntary after-tax contributions.
What is the maximum solo 401k voluntary after-tax contribution? The annual solo 401k contribution limits are determined on an annual basis. For 2020, the maximum solo 401k contribution limit is $57,000 or $63,500 for those 50 or older in 2020. Therefore, if you have enough net income from self-employment, for 2020 the voluntary after-tax contribution limit is $57,000 as the catch up amount of $6,500 can not be applied as voluntary after-tax contribution, but it may be made to the Roth solo 401k bucket.
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