A solo 401 k plan, also known as an individual 401k, is a qualified retirement plan approved by the IRS, explicitly designed for self-employed individuals and small businesses with no full-time employees other than the business owner and his or her spouse. This retirement plan has great investment potentials and determining the eligibility requirements for a solo 401 k plan is critical knowledge needed by a person to invest in this opportunity.
Solo 401 k Plan Eligibility Requirements
For an Individual to qualify for a solo 401k retirement plan, he or she must meet the two solo 401 k plan eligibility requirements.
The Existence of Self-Employment Activity
The first and most important requirement to qualify for the solo 401k benefits is the existence of self-employment activity in the individual applying for a solo 401 k plan. These applicants must be able to establish that they are generating some income from their respective self-employed work.
There is still no fixed self-employment income set to qualify for the solo 401 k plan and people applying for the 401k plans for individuals can either be generating income on a full-time or a part-time self-employed basis to qualify for the retirement plan.
People who engage in businesses can also be eligible to benefit from the solo 401 k plan. Those individuals who operate a sole proprietorship, limited liability company, S corporation, limited partnership and C corporation businesses that do not employ any full-time employee other than their spouses, can take advantage of the investment opportunity.
No Full-time Employees
According to the rules set by the 401 k plans for small business, all individuals who are engaged in any businesses mentioned above can participate in a solo 401 k plan, as long as the business owner availing the plan does not maintain any employee other than his or her spouse. However, certain employees are exempted from this rule.
Employees Exempted from the Rule
- Certain Union Members
- Employees working lower than 1000 hours annually
- Employees who are under 21 years of age
- Employees who are Non-resident Aliens
- Owner’s spouses that work as full-time employee or as a partner in the business
It is important to understand that an individual applying for a solo 401k plan, can still maintain part-time employees who are not covered by the rules set for this plan. Proper knowledge and understanding of the eligibility requirements for a solo 401 k Plan will provide helpful information that you can use in deciding whether or not you can take part in this once in a lifetime opportunity.
For more information on the solo 401 k plan eligibility requirements, please feel free to contact one of our Solo 401k plan experts.