Clear Money Guide
What this guide covers
A quick view of the questions and evidence developed below.
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Updated July 28, 2026. Quick answer: There is no statutory prohibition — “solo 401(k)” is a marketing label, not a plan type in the Code. What breaks is testing: IRC §410(b) coverage and §401(a)(4) nondiscrimination force the plan to cover eligible non-owner employees, which ends the one-participant character. As the IRS puts it, “the no-testing advantage vanishes if the employer hires employees.”
Why the distinction matters rather than being pedantic
If a rule forbade it, the answer would be binary. Because the real constraint is testing, the answer depends on who you hired and whether they are eligible — and there is real room to manage it.
IRC §410(b)(1) requires that a plan benefit at least 70% of non-highly-compensated employees, or clear a comparable ratio. §401(a)(4) requires that contributions “not discriminate in favor of highly compensated employees.” A plan covering only the owner fails both the moment there is an eligible employee who is excluded.
Get the self-employed plan structure checked
The right plan for an owner depends on the entity, the payroll and whether anyone else is on the books, and an adviser can check the structure before a contribution is made that has to be unwound.
Before you start, what actually happens. The form is run by Kapitalwise, our advisor-matching partner. Kapitalwise sends your details to advisers who pay for the introduction, so expect calls and texts. Clear Money Guide is paid when you submit the form, whether or not you ever hire anyone. This is free to you and there is no obligation to hire anyone.
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What happens when you press the button
It asks about nine questions (age, investable assets, location), then your name, email and phone number, and verifies the phone by text. Nothing loads and nothing reaches Kapitalwise until you press the button. Submitting the form does not guarantee an adviser or a match. This matching form is not tax or legal advice.
Who does not have to be let in yet
IRC §410(a)(1)(A) lets a plan require, as a condition of participation, the later of age 21 and one year of service. So a new hire is generally not eligible immediately, and that window is real planning time rather than a loophole.
| Who you hired | Effect on a one-participant plan |
|---|---|
| Your spouse | None — the IRS treats an owner “and his or her spouse” as still one-participant. It roughly doubles household capacity |
| A full-time employee, past age 21 and a year of service | Ends it. Testing now applies |
| A long-term part-time employee | Must be allowed to defer, but you need not make employer contributions for them |
| An employee of a different business you own | Counts as yours. This is the one people do not see coming |
Whatever the plan is called by whoever sold it to you, the IRS position is that “it must meet the rules of the Internal Revenue Code.” A provider’s product name confers nothing.
Every dollar limit in this area is indexed and changes annually. The figures printed in the Code itself — $40,000 for the defined-contribution limit, $160,000 for the defined-benefit limit, $15,000 for elective deferrals — are 2001 and 2005 base amounts that will never be updated in the statute; IRC §415(d) and §402(g)(4) do the adjusting. Get the current year’s figures from the IRS cost-of-living notice for that year rather than from any article, including this one. Nothing on this page states a dollar amount for that reason.
Sources
IRC §410(a)(1)(A) and §410(b)(1); §401(a)(4); §401(k)(2)(D) as amended by the SECURE 2.0 Act §125; §416(g)(4)(H); §414(b), (c) and (m); IRS One-participant 401(k) plans and IRS Notice 2024-73.
This states what the cited authority says. It is not tax advice, and retirement-plan design turns on facts about your business and your other entities that no page can see. Every dollar limit referenced here is indexed and changes annually.