In most cases, one is able to roll almost anytime of retirement account to a Solo 401(k) Plan. The only exception is a Roth IRA, which is not eligible to be rolled into a Solo 401(k) Plan. Hence, one can roll a Traditional IRA, 401(k) Plan, 403(b), 457(b), and a defined benefit plan tax-free and penalty free into a solo 401(k) Plan. In the case of a SIMPLE IRA, only after two years, can SIMPLE IRA funds be rolled into a solo 401(k) Plan. Also, in the case of a non-governmental 457(b) Plan, those funds can only be rolled into another non-governmental 457(b) plan.
The question arises as to why Roth IRA funds cannot be rolled into a qualified retirement plan that includes a Roth component, such as a Solo 401(k) Roth plan? Unfortunately, there is no good answer. The IRS has yet to amend their rollover rules as it pertains to the Roth IRA, although, many tax practitioners believe it is only a matter of time before the IRS begins to allow Roth IRA funds to be rolled into a Roth (after-tax) component of a 401(k) Plan. One argument made for not permitting a Roth IRA to be rolled into a Roth 401(K) Plan is the accounting issues that would result in tracking pre-tax and after-tax funds in the plan, although, an argument can be made that the same accounting is applied now when a 401(k) plan has a pre-tax and Roth component. In addition, the Roth IRA funds can be deposited into a separate 401(k) plan sub-account, which can be accounted for separately. The bottom line is that there does not seem to many strong arguments for not permitting a Roth IRA to be rolled into a Solo 401(k) Plan, especially a plan that contains a Roth component. However, for the time being the IRS has not amended their Roth IRA rollover rules which still restrict a Roth IRA from being rolled into a Solo 401(k) Plan.
There is one main advantage of not rolling a Roth IRA into a Solo 401(k) Plan. With a Roth IRA there are no required minimum distributions for the Roth IRA holder and spouse of the Roth IRA holder, whereas, in the case of a 401(k) Plan the Roth 401(k) component, required minimum distributions must be taken even in tax would be due.
To learn more about the Roth IRA and solo 401(k) Plan rollover rules, please contact a tax professional at 800-472-0646.