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.
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.