Roth IRA’S and Roth Solo 401k’s – A Simple Explanation

When we ask our clients what they know and understand about Roth retirement accounts the answers are all over the map. Most don’t know much or are confused about what they do know.

Below is a simple explanation meant to help as many as possible.

ROTH doesn’t mean anything by itself; it reflects the last name of the Senator from Delaware who pushed through the legislation in 1997.

ROTH SOLO 401 ‘s came to be in 2006.

The simplest way to explain the ROTH concept is:

The IRS allows a taxpayer to contribute after tax dollars to either a ROTH IRA or a ROTH SOLO 401 k. Let’s call that the “seed” money. The seed grows and grows over the years in a tax-deferred environment. Once the ROTH account is established for five years AND the taxpayer reaches 59 ½, the “seed” becomes the “harvest”. The tax deferment changes to tax-free.

Imagine taking tax-free withdrawals and never worrying what new and better idea Congress is going to come up with!


Combining ROTH with a self directed retirement account is like icing on the cake. With a true checkbook controlled ROTH account you can invest in real estate, precious metals, tax liens, currencies, private businesses, notes – anything that is legal – knowing your gains will be tax-free! AND you don’t need a bothersome custodian.

“We have a client who purchased a rental property a couple of years ago using his self directed IRA.  His IRA is seasoned – meaning it is at least five years old and he is (seasoned) meaning he has reached the age of 59 1/2. (a bit of levity every once in awhile) His Roth IRA collected rents for three years and paid incidental expenses.  He was fortunate to ride the bubble down and back up and recently sold the property for a nice profit.  The net rents collected and the profit are inside his Roth IRA.  He can reinvest or take a tax free distribution and go on a cruise etc.  This is just one example of how to use one of the best tax planning vehicles the IRS allows.  Neither our client nor his heirs will pay income tax on the gains inside the Roth IRA.”

We have specialized for ten years explaining the ROTH concept to our clients nationwide and worldwide. We listen, educate and establish the right type of ROTH account for them to employ.

Rick Pendykoski

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