Solo 401k Eligibility: Do You Actually Qualify?

The Solo 401k is the VIP lounge of retirement plans: exclusive, powerful, and strictly gated. To get in, you must pass two tests: Self-Employment Income and No Full-Time Employees. While the income part is easy, the employee rule has become a minefield due to the new SECURE 2.0 Act. It’s no longer just about the “1,000-hour” rule. Now, even a part-timer working 500 hours can disqualify your plan if you aren’t careful. Here is the strict eligibility filter to ensure you don’t accidentally break the rules in 2026.

BMT Tax Team BMT Tax Team · 📅 Feb 2026 · ⏱️ 5 min read · INVESTING › ELIGIBILITY
Rule 1
Income
Must have Biz ActivityFact
New Rule
500 Hrs
LTPT Rule (2 Years)Warn
Limit
1,000
Full-Time Limit (1 Year)Rule
Reviewing 1099 forms to confirm contractor status

Contractors (1099) keep you safe; Employees (W-2) get you disqualified.

1. The “Owner-Only” Rule

“Solo” doesn’t mean you have to be alone, but it does mean you can’t be a “boss.”

Who Counts as an Owner?
The IRS defines an owner-only business as one covering:
• You (The Business Owner)
• Your Spouse (The only allowed “employee”)
• Partners (Must own significant equity)
Anyone else is an “Employee.” If they qualify for the plan, the “Solo” status ends.

2. The New 500-Hour Trap (LTPT)

The old rule was “keep them under 1,000 hours.” The new rule is much stricter.

Part-Time Employee Hours (Annual) Current: 600 hrs / Warning: 500 hrs
⚠️ Warning: 500+ Hours (LTPT Track Started)
SECURE 2.0 Update
Long-Term Part-Time (LTPT) Rule: Even if an employee works less than 1,000 hours, if they work 500+ hours for 2 consecutive years, they MUST be allowed into the plan.
Result: Your Solo 401k is disqualified. You must convert to a SEP IRA or a full 401k.

3. Eligibility Checklist (Pass/Fail)

Find your business setup below.

✅ Eligible (You Qualify)
  • Freelancer: No employees.
  • Spouse Team: Both work full-time.
  • Consultant: Hires 1099 contractors only.
  • Safe Hire: Temp worked 400 hours total.
❌ Ineligible (Disqualified)
  • Small Biz: Has 1 full-time secretary.
  • The LTPT Trap: Part-timer worked 600 hours in 2024 AND 2025.
  • Passive Owner: Investor with no earned income.

4. Timeline: Tracking the Danger

You must track employee hours like a hawk.

Year 1 Year 2 Result in Year 3
400 Hours 400 Hours Safe. (Keep Solo 401k)
600 Hours 400 Hours Safe. (Must be 2 consecutive years)
600 Hours 600 Hours DISQUALIFIED. Employee is eligible.

5. Frequently Asked Questions

Does a “Side Hustle” count?
Yes. You can have a full-time job (with a corporate 401k) and open a Solo 401k for your Uber driving or consulting on the side. However, the $23,000 “Employee” limit is shared across ALL plans.
What if I use contractors?
Totally fine. Independent Contractors (1099-NEC) are not employees. You can hire 100 contractors and still keep your Solo 401k. Just make sure they don’t look like employees (misclassification risk).