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Solo 401k Eligibility

Solo 401k Eligibility

As mentioned in a previous post, there are eligibility requirements for a Solo 401k. Although not just anyone can join the party, the majority of individuals are either eligible right now or can easily become eligible.

Self Employment Activity

The first of the two eligibility requirements for a Solo 401k is the presence of some type of self-employment activity. Your self-employment activity can be full-time or part-time. It may be a side business. It could be some consulting or freelance work you perform. You may be an independent contractor of another business that issues you a 1099. You can even be employed elsewhere full-time. What the “self-employment activity” may not be is a hobby. If you collect baseball cards and sold one of those cards to a friend a couple years ago, you probably don’t want to use that as a basis for adopting a Solo 401k plan. You do need to have legitimate self-employment activity, but it’s important to understand that there is no predetermined minimum income that needs to be earned or a minimum that must be contributed to the plan. Your self-employment activity can be brand new and you can adopt a plan before the business has made a profit.


The second eligibility requirement is the absence of any full-time non-owner W-2 employees. Let’s take a look at each of these descriptions individually to get a better understanding of when an employee will get your invitation to the Solo 401k party revoked.

Full-time: If you don’t have any employees that work full-time, you can still be eligible for a Solo 401k. The IRS considers fewer than 1000 hours per year to be part time. While one employee who works over 1000 hours per year will make you ineligible, you could have several part-time employees without running into any eligibility problems.

Non-owner: Having a partner that works for the business is ok when it comes to your eligibility. If there is another “employee” besides you in the business, but that person is an owner of the company, you can still be eligible for a Solo 401k.

W-2: If you have actual common-law employees, they likely receive a W-2 from you and you withhold taxes from their payroll. These are the type of employees that affect Solo 401k eligibility (if they are full-time, non-owner employees as well). If, on the other hand, your business hires or contracts with another business or self-employed individual to provide services, you may just have an independent contractor and not an employee. Independent contractors or “1099 workers” do no affect Solo 401k eligibility regardless of the number of hours worked or the fact that they are not an owner in your business.

Once you break down the two simple eligibility requirements, it’s easier to see that most people are eligible or can fairly easily become eligible for a Solo 401k plan of their very own. If you’re eligible for a Solo 401k plan, consider this your official invitation to join the party.