Solo 401(k) Eligibility

If you're looking to set up a Solo 401(k) (also known as an Individual 401(k) or Self-Employed 401(k)), the first step is confirming you meet the plan's eligibility requirements. This page breaks down exactly who qualifies, how business structures affect eligibility, and what happens if your situation changes.

Who Can Open a Solo 401(k)?Business Structures That Qualify Common Eligibility Questions Maintaining Eligibility Next Steps

Who Can Open a Solo 401(k)?

1. Self-Employed Individuals

You must have earned income from a trade or business in which you operate as the owner (or sole proprietor).
This includes freelancers, consultants, independent contractors, and "gig" workers.

2. Small-Business Owners With No Employees

Your business can't have any full-time employees (other than a spouse).
"Full-time" generally means working 1,000 or more hours per year.

3. Spouse Employees

If your spouse works in your business, they can also participate in the plan, effectively doubling household contributions.
No non-spouse, full-time employees are allowed if you want to maintain Solo 401(k) status.

Key Point: Having part-time or seasonal employees who work fewer than 1,000 hours per year typically doesn't disqualify you from having a Solo 401(k). However, you should verify the specific rules with your plan provider, as regulations around eligibility and part-time workers can vary (and may change over time).

Business Structures That Qualify

You can set up a Solo 401(k) under several business structures as long as the owner has self-employment income and no full-time employees. Examples include:

Sole Proprietorship

Operate under your personal name or a "doing business as" (DBA).

Single-Member LLC

The LLC is taxed as a disregarded entity (i.e., similar to a sole proprietor).

Multi-Member LLC or Partnership

Each partner/LLC member can open their own Solo 401(k) if they have no employees under them (other than a spouse).

Often more complex—consult with a CPA or financial advisor.

S-Corporation

You pay yourself a salary (W-2), and your Solo 401(k) contributions are based on that salary.

C-Corporation

Less common, but still possible, provided you and your spouse are the only employees.

Note: The key eligibility factor isn't necessarily the business entity type; it's that you're self-employed, actively earning income, and don't have full-time employees (aside from a spouse).

Common Eligibility Questions

1. What if I have a side gig in addition to my regular job?

If you're employed full-time by someone else (and possibly covered by their 401(k) plan), you can still open a Solo 401(k) for your side business. However, your total contributions across all employer plans (including the Solo 401(k)) must stay within IRS annual limits.

2. Can I hire independent contractors without losing Solo 401(k) eligibility?

Yes. Independent contractors (paid via 1099) are not considered W-2 employees. As long as you do not bring on a W-2 employee who works 1,000+ hours per year, you generally remain eligible.

3. If I have part-time or seasonal employees, am I still eligible?

Potentially. It depends on how many hours they work and other factors (like how many years they've worked for you). Under current rules, employees must typically work at least 1,000 hours per year for you to be required to offer them participation in a 401(k). Consult your provider to clarify the specifics, as IRS regulations can change.

4. What if my spouse works in the business?

That's allowed. Your spouse can contribute to the same Solo 401(k) plan, often doubling total contributions. You'll need to ensure they receive legitimate compensation from the business (i.e., they're on payroll or otherwise have earned income).

5. What if I hire a non-spouse employee later?

If you hire a full-time W-2 employee who's not your spouse, you'll generally need to transition from a Solo 401(k) to a regular 401(k) plan that includes coverage for your new employee(s). There may be a grace period, depending on the plan rules and how quickly your employee becomes eligible, but be prepared to update your retirement plan accordingly.

Why Eligibility Matters

IRS Compliance: If you set up or maintain a Solo 401(k) while ineligible, you could face penalties, forced distributions, or plan disqualification.
Plan Contributions: Only eligible owners/spouses can contribute to the plan. Ensuring you meet criteria avoids complications during setup or during tax filing.
Future Flexibility: Knowing how eligibility rules change if you scale your business (adding employees) helps you plan for potential plan conversions.

Next Steps

1. Verify Your Business Status

Make sure your business formation and any employees are correctly classified.
Confirm you meet the "no non-spouse full-time employee" rule.

2. Choose a Solo 401(k) Provider

If you're eligible, check out our Provider Comparisons to find a Solo 401(k) solution that fits your needs.

3. Review Contribution Limits

Visit our Contribution Limits page to learn how much you can set aside each year.

4. Consult an Expert

If you have questions about your unique situation—especially if you have a multi-member LLC, partnership, or plan to hire employees—consider talking to a CPA or financial advisor.

Resources & Related Pages

Solo 401(k) Basics

Your go-to overview of Solo 401(k)s, covering plan features, benefits, and how they differ from other retirement plans.

Setup & Administration

Learn the step-by-step process for opening your account, funding the plan, and staying compliant with IRS rules.

FAQs

Dive into more detailed questions about specific Solo 401(k) scenarios, from rollovers to in-plan Roth conversions.

Still unsure about your eligibility? Send us a message, and we'll do our best to guide you in the right direction.

Information on this site is for educational purposes only and does not constitute tax, legal, or investment advice. Always consult a licensed professional for personalized guidance.

About BestSolo401k.com

At BestSolo401k.com, we specialize in helping solopreneurs, freelancers, and self-employed professionals navigate the ins and outs of Solo 401(k) planning. From eligibility to setup, we're committed to providing clear, practical information you can trust.

Email: info@bestsolo401k.com

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