Solo 401k Eligibility Requirements
A potential client recently contacted us about Solo 401k eligibility requirements. He was interested in setting up a Solo 401k Plan for his spouse.
The individual owns a business with full-time employees, which disqualifies him from a Solo 401k. But his wife owns a small interest in a separate business which does not have full-time employees. Would she be eligible then to establish and participate in a Solo 401k?
Solo 401k eligibility requirements and controlled group rules
It’s not necessarily an easy question to answer due to a category of IRS controlled group rules.
It’s possible that the spouses’ business can be structured so that neither spouse has an ownership interest in the other spouse’s company. Neither spouse can have involvement in the other’s company. And neither spouse can have any rights to the other spouse’s company, such as a buy-sell agreement upon death.
This possible exception from the controlled group rules, however, can still cause problems in states with community property laws. California, the state of residency for this particular individual, is one such state.
Also, if the spouses have a minor child, that minor child is deemed to own both companies. There is no exception for this; having children causes the companies to become related. And if the companies are related, neither spouse would be able to participate in a Solo 401k.
The Solo 401k (also known as an Individual 401k or Owner-Only 401k) is designed specifically for the self-employed or small business owner without full-time employees. (Part-time workers can be legally excluded from participating in the plan). Because of its many advantages, the Solo 401k Plan is the ultimate choice for those who qualify.
For more information about the Solo 401k and its eligibility requirements, please contact one of our retirement plan specialists.
Related Terms:
- Individual 401k
- Solo 401k Eligibility
- Solo 401k Solution
- Solo 401k Contribution Limits
February 21, 2013 @ 7:20 am
I am employed and have a employer matching 401K. But, I also do work on the side for clients and file a schedule C for that work. Does my side income qualify me to have a self directed solo 401K plan. I would rather invest most of this income into a self directed 401K to use for real estate investment since I do not need the income and want to keep my tax liability as low as possible. Thanks, Roy
February 21, 2013 @ 11:58 pm
As long as you have legitimate self-employment activity (it can be in addition to the full time employment) and absence of full time-employees working for you, you qualify for self-directed solo 401k. And if your self-employment income allows, you can make maximum contributions to your solo plan, but in addition to that you can also contribute on the business side (profit sharing). This will result in significantly lowering your tax liability and maximizing your retirement contributions, which means you have more funds available to invest in real estate or other non-traditional investments under your retirement plan.
April 10, 2019 @ 9:35 pm
Hello
I am a nail tech self employed or contractor. Would I qualify for a solo 401K or do I have to be incorporated ?
April 10, 2019 @ 9:56 pm
Cindy, any legitimate business (LLC, corporation, partnership, sole-proprietorship, etc.) can adopt a Solo 401k plan. As self-employed are considered “sole-proprietor”, which is legitimate business type – you qualify!