A Solo 401k plan is best suited for individuals and spouses who own and operate a business without additional full-time employees.  An individual who generates self-employed income is eligible for an Individual 401k plan.

A few examples of those who are eligible for an Individual k or Solo 401k plan are:

  • An individual who owns and operate a sole proprietor business with no employees
  • An individual and spouse that owns and operate a partnership business with no employees
  • A full-time self-employed individual
  • A part-time self-employed individual
  • An individual or an individual and spouse who owns and operate a sole proprietor or partnership business with employees that are excluded from coverage
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Employees exempted from coverage are the following:

  • Employees who are under 21 years of age
  • Non-permanent employees with less than a year of service
  • W-2 employees who render less than 1,000 hours per year
  • Employees who are union members
  • Nonresident-alien employees

General Requirements to Qualify for a Solo 401k plan

To qualify for Solo 401k eligibility, an individual must meet the following requirements:

Generate Income for a Self-employed Activity

To be able to be eligible for a Solo 401k, a person is required to maintain certain self-employed revenue. Nevertheless, he or she may not be required to work exclusively in a self-employed capacity. A typical illustration of part time self-employed revenue is a person working for a company, but at the same time employed in consulting or contracting on the side. The consulting/contracting compensation is actually regarded as self-employed revenue, thus making the individual’s business entity qualified for utilizing a Solo 401k. An individual or solo 401K Plan may be utilized by any kind of self-employed business venture, such as a sole proprietorship, partnership, and limited liability company.

The Absence of Qualified Employees

As a general rule, only self-employed individuals or owners of businesses that have no employees are eligible for a Solo 401k plan. However, an exemption can be made for those businesses that employ their spouse as a full-time employee and those businesses that have employees that are exempted from coverage as indicated above.

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