The Trump Tax Cuts and Jobs Act creates a 2026 Minimum Required Distribution income tax vignette, making the Solo Roth 401k a better contribution option now than ever before.

Under old tax rates, it made sense to use traditional Solo 401(k) pretax-deductible contributions. But with the new tax rates, the pre-tax decision needs to be reexamined. Roth contributions, while not initially deductible, grow tax-free and can be much more beneficial in your later years.

TCJA cut personal marginal tax rates that will go up again in 2026. This means that getting money in a Solo Roth 401k now can turn into a huge increase in your wealth later

With the potential to return to higher tax rates in 2026 and beyond, adding accounts like the Solo Roth 401k requires a second look. WHY? Starting at age 70½, a formula designed by the IRS tells you the minimum amount you must start withdrawing from retirement accounts as taxable income. This additional income on your tax return:

1. often pushes your income into the next higher tax bracket,
2. you can make more of your Social Security taxable, and also,
3. can lead to higher Medicare Part B premiums.

RMDs can create a tax bomb by 2026. Throw in higher rates when that bomb hits in 2026, and wham! Your net earnings in retirement can take a big hit in income tax.

Using the lower tax rates from 2018, you will have a tax rate advantage when rates go up again in 2026.

consider this: Under the lower tax rules, before age 70, you convert a portion of your pre-tax Solo 401k to a Roth Solo 401k, and only pay taxes at the rates of 10% and 12%. Beginning in 2026, after you reach age 70½, without this strategy, you would be subject to tax rates at the higher marginal rates of 25% and 28%. Using the Roth conversion strategy, you pay taxes at 12 cents on the dollar today, instead of 25 to 28 cents on the dollar or more later. That’s one tax rate advantage you don’t want to miss out on.

Regarding income limitations, if your adjusted gross income in 2018 is less than $275,000, you can make an annual contribution to a Roth Solo 401k of $18,500 if you are under age 50 or $24,500 if you are age 50 or older. If you have a spouse who works with you, who has earned income, your spouse can also make a Roth Only 401k contribution. With smart review, there is usually a way to put money into a Solo Roth 401k.

Those a few years away from retirement aren’t the only ones who should take another look at Solo 401k Roth. Smart planning means finding ways to put money into a Solo Roth 401k to help grow your savings. With the new tax laws, a little calculation now can mean thousands of tax savings later.

Do you have questions?