Can You Have a Solo 401(k) With Part-Time Employees?

You can keep a solo 401(k) with part-time employees, but only if none of them crosses the federal service thresholds that force the plan to include them. Two lines matter: 1,000 hours in a single 12-month period, and, under SECURE 2.0, 500 hours in each of two consecutive 12-month periods. Stay below both, or hire workers who fall into an excluded category, and the plan remains a one-participant arrangement.¹

The 1,000-Hour Rule

Federal law draws a bright line at 1,000 hours of service in a 12-month period. Any employee who works at least that much in a single computation year becomes eligible to participate in your 401(k).² Once that happens, the plan can no longer operate as a one-participant arrangement. The solo designation is gone, and you either convert to a standard 401(k) that covers the newly eligible worker or wind the plan down.

For context, 1,000 hours works out to roughly 20 hours per week for 50 weeks. A part-timer working 15 hours a week year-round stays under the line. Someone filling in 25 hours a week for most of the year will blow past it. Business owners who don’t track this closely risk discovering the problem only after an IRS audit or plan review.

The 500-Hour Long-Term Part-Time Rule

The 1,000-hour rule is no longer the only trigger. Under SECURE 2.0, a part-time employee who logs at least 500 hours in each of two consecutive 12-month periods and has reached age 21 must be allowed to make elective deferrals into the 401(k).³ This rule took effect for plan years beginning after December 31, 2024, so it already applies to 2026 plan years.⁴

This is the rule that catches solo 401(k) holders off guard. A worker putting in just 10 or 12 hours a week accumulates around 500 to 625 hours in a year. Keep that person on staff for two years running, and they qualify even though they never came close to the 1,000-hour mark in any single year. If you have a steady part-time assistant, you are on a two-year countdown.

There is a meaningful silver lining. Employees who qualify solely through the long-term part-time rule are only entitled to make their own elective deferrals. The employer does not have to provide matching or nonelective contributions to them, and they can be excluded from nondiscrimination testing.⁴ That limits the financial burden. But the plan still has more than one participant, which means it is no longer a solo 401(k) for administrative and filing purposes.

Workers Who Don’t Count Against Your Solo 401(k)

A solo 401(k) is defined as a plan covering a business owner with no employees, or the owner and a spouse.¹ Several categories of workers can be brought on without threatening that status.

Independent Contractors

Independent contractors who receive a 1099-NEC are not your employees. They run their own businesses, control how they perform their work, and handle their own taxes. You can hire freelancers, consultants, and subcontractors without triggering any eligibility threshold for your solo 401(k).

The danger here is misclassification. If you call someone a contractor but treat them like an employee, setting their hours, providing their tools, directing how they do the work, the IRS and Department of Labor can reclassify them as W-2 employees. That reclassification retroactively counts their hours toward the 1,000-hour and 500-hour thresholds. The consequences ripple through payroll taxes, benefits, and your plan’s qualified status. If you rely on contractors to keep your solo 401(k) intact, make sure the working relationship genuinely reflects contractor status.

Employees Under Age 21

Federal law permits a 401(k) plan to exclude any employee who hasn’t reached age 21.² A teenager working summers at your business doesn’t become eligible even if they rack up well over 1,000 hours in a year.⁵ Just remember that the clock starts ticking as soon as they turn 21. Hours worked before that birthday can count toward service requirements once the age condition is met.

Union and Nonresident Alien Employees

Plans can also exclude union employees covered by a collective bargaining agreement that addresses retirement benefits, as well as nonresident aliens with no U.S.-source income.⁶ These are narrower exclusions but they matter for businesses that occasionally bring on foreign national workers or operate in unionized trades.

Multiple Businesses and Controlled Groups

Owning more than one business creates a trap that catches a surprising number of solo 401(k) holders. Under federal law, all employees of businesses that form a controlled group or are under common control are treated as working for a single employer for retirement plan purposes.⁷ You cannot set up a solo 401(k) in one entity while ignoring full-time employees in a related entity you also own.

The classic scenario: a consultant sets up an LLC for freelance work and maintains a solo 401(k) in that LLC. The same person also owns 80% of a separate small business with three full-time employees. Because both entities share common ownership, the employees at the second business count when determining whether the LLC’s plan qualifies as a one-participant plan. The solo 401(k) was never valid in the first place.

The ownership thresholds that trigger controlled group status generally start at 80% common ownership for parent-subsidiary and brother-sister corporate structures, though affiliated service group rules can apply at much lower percentages. If you own interests in multiple businesses, review this with a retirement plan specialist before opening or maintaining a solo 401(k).

How to Count an Employee’s Hours

The method you choose for counting service hours directly affects how quickly a worker reaches an eligibility threshold. Federal rules allow two approaches.

Hours-Counting Method

This tracks every actual hour for which a worker is paid or entitled to payment, including paid vacation, sick leave, and holidays.⁸ It gives the most precise picture and the most control. If a part-timer works 18 hours a week, you know exactly where they stand relative to the 500- and 1,000-hour lines. The downside is administrative overhead: reliable timekeeping and consistent payroll records.

Elapsed-Time Method

The alternative tracks the total period of employment from hire date to severance date, regardless of how many hours the person actually works.⁸ A worker hired on January 1 who is still employed on December 31 gets credited with a full year of service, even if they only worked five hours a week. This simplifies bookkeeping but tends to qualify workers faster. For an owner trying to stay below eligibility triggers, elapsed time often works against you.

Most solo 401(k) holders with part-time help are better off using the hours-counting method. The extra recordkeeping pays for itself by giving you an accurate picture of where each worker stands relative to the thresholds that matter.

What Happens if a Worker Crosses the Threshold

Once a part-time worker crosses an eligibility line, you have a decision to make. You can’t simply pretend nothing happened. The IRS expects plan compliance, and inaction creates compounding problems.

Convert to a Standard 401(k)

The most straightforward option is amending your solo 401(k) plan document to accommodate multiple participants. That means updating the plan terms to reflect group eligibility, notifying your custodian, and enrolling the newly eligible employee. Amendment fees from plan providers typically run $200 to $500, though costs vary. Your existing assets and any outstanding plan loans carry over.

You must distribute a Summary Plan Description to the newly covered worker within 90 days of the date they become eligible.⁹ The SPD outlines investment options, any employer matching contributions, and the employee’s rights under the plan. Enrollment forms go out alongside it.

Terminate the Solo 401(k)

If running a multi-participant 401(k) doesn’t fit your business, you can terminate the solo plan and roll your balance into a traditional IRA, Roth IRA, or self-directed IRA. Termination requires filing a final Form 5500-EZ and issuing a Form 1099-R for the distribution or rollover. You would then need a separate retirement arrangement, such as a SEP-IRA, that covers both you and any eligible employees. A SEP-IRA is simpler to administer but doesn’t allow employee elective deferrals.

Filing Requirements Change

While you have a solo 401(k), you only need to file Form 5500-EZ, and only if the total assets across all your one-participant plans exceed $250,000 at the end of the plan year.¹⁰ Once you convert to a standard 401(k), filing becomes mandatory regardless of asset level. Plans with fewer than 100 participants generally file Form 5500-SF; larger plans file the full Form 5500.¹¹

Contribution ceilings also matter differently once you have multiple participants. For 2026, the combined employee deferral and employer profit-sharing limit is $72,000 per participant, plus an $8,000 catch-up at age 50 or an $11,250 super catch-up at ages 60 through 63.¹² Each newly eligible employee gains their own deferral rights, and your out-of-pocket cost rises if the plan requires matching or nonelective contributions to those workers.

Practical Strategies for Keeping the Solo Structure

If your goal is to preserve the solo structure for as long as possible, a few measures help.

Cap part-time hours carefully. If a worker stays below 500 hours per year (roughly 10 hours per week), they won’t trigger either the 1,000-hour or the long-term part-time rule. Monitor hours monthly rather than discovering at year-end that someone blew past a threshold.
Use genuine independent contractors. Outsourcing tasks to freelancers keeps those workers entirely outside your plan’s scope, as long as the relationship actually qualifies as independent contractor status under IRS guidelines.
Hire workers under 21 for seasonal help. The age exclusion means younger employees don’t trigger eligibility regardless of hours worked.⁵
Review controlled group exposure. Before opening a solo 401(k), confirm that your other business interests don’t create a controlled group that would aggregate employees across entities.⁷

None of these strategies involves gaming the system. They are built into the federal framework specifically to give small business owners flexibility. Problems arise when owners assume that “part-time” automatically means “doesn’t count.” It doesn’t, and the two-year long-term part-time rule under SECURE 2.0 has made that assumption riskier than ever.

1
Internal Revenue Service. One-Participant 401(k) Plans
2
Office of the Law Revision Counsel. 26 U.S. Code 410 – Minimum Participation Standards
3
Federal Register. Long-Term, Part-Time Employee Rules for Cash or Deferred Arrangements Under Section 401(k)
4
Internal Revenue Service. Additional Guidance with Respect to Long-Term, Part-Time Employees
5
Internal Revenue Service. 401(k) Plan Qualification Requirements
6
Internal Revenue Service. Retirement Topics – Eligibility and Participation
7
Office of the Law Revision Counsel. 26 U.S. Code 414 – Definitions and Special Rules
8
Internal Revenue Service. Publication 6388 – Employee Benefit Plans Explanation No. 1 Minimum Participation Standards
9
U.S. Department of Labor. 401(k) Plans For Small Businesses
10
Internal Revenue Service. Financial Advisors Are Assets in Your Clients One Participant Plans More Than $250,000
11
U.S. Department of Labor. Instructions for Form 5500 Annual Return/Report of Employee Benefit Plan
12
Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs