Can An LLC Open A Solo 401k?

Choosing the right retirement plan is one of the biggest financial decisions for business owners, and many LLC owners wonder if they qualify for a Solo 401k. 

The answer is yes — an LLC is generally eligible, but the details depend on how the business is structured for tax purposes.

A Solo 401k is designed for self-employed individuals and small business owners without full-time employees. That makes it a natural question for LLC owners who want to save more for retirement and take advantage of higher contribution limits compared to other plans.

In this article, we’ll break down how an LLC can open a Solo 401k, what rules apply, and what factors you should consider before setting one up.

What Is an LLC?

A Limited Liability Company (LLC) is a popular business structure in the U.S. that separates personal and business responsibilities. This structure generally protects owners from being personally liable for business debts or legal claims.

Key advantages of an LLC:

✅ Offers liability protection similar to a corporation

✅ Requires less paperwork and fewer formalities than a corporation

✅ Provides flexibility in ownership, management, and taxation

Any size of business can form an LLC, from small one-person businesses to large private companies. For example, many family-owned businesses and subsidiaries of larger corporations operate as LLCs.

LLCs also have flexibility in how they are taxed:

📝 Note: The way your LLC is taxed affects how Solo 401k contributions are calculated. For instance, single-member LLCs often use net income from Schedule C, while S corporation owners calculate contributions based on W-2 wages.

✏️ Hypothetical Example:

Alex runs a consulting business as a single-member LLC. For tax purposes, it’s treated as a sole proprietorship, so Solo 401k contributions are based on Alex’s net income after self-employment deductions. If Alex later elects S corporation status, contributions would instead be tied to W-2 wages.

Can an LLC Open a Solo 401k?

Yes. An LLC may be eligible to open a Solo 401k, as long as it meets the two main IRS requirements:

Eligibility rules:

✅ The business must have self-employment activity that generates earned income.

✅ The business must not employ non-owner workers, except for a spouse. This includes part-time employees age 21 or older and have worked at least 500 hours in each of two consecutive years.

📝 Note: Your spouse is an exception to the no-employee rule. If they work in the business, both of you may maintain separate Solo 401k accounts under the same plan.

LLCs of nearly any income level may qualify. The IRS does not impose income limits for establishing a Solo 401k. Whether the LLC generates a few hundred dollars from weekend work or brings in six-figure earnings, it could still meet the eligibility test as long as the self-employment requirement is satisfied.

📌 Also read: Can an S Corporation Open a Solo 401K?

Contribution Limits

The Solo 401k contribution rules for an LLC depend on whether the business is taxed as a corporation or as a sole proprietorship/partnership.

For 2025, the combined Solo 401k contribution limit is:

Breakdown of 2025 Solo 401k contributions:

Employer contributions must always go into the traditional Solo 401k account. Employee contributions may go into either the traditional or Roth Solo 401k account, depending on your plan’s setup.

✏️ Hypothetical Example:

Jordan operates a single-member LLC taxed as a sole proprietorship and earns $100,000 in net self-employment income. In 2025, Jordan could contribute $23,500 as an employee deferral, plus about $20,000 as the employer portion (20% of net earnings after the tax adjustment), for a combined contribution of more than $43,000. If Jordan were age 50, the total could increase to over $50,000 with the catch-up contribution.

📝 Reminder: The exact amount you can contribute depends on how income is defined for your LLC, whether W-2 wages or net adjusted income, and how self-employment deductions apply.

What If My LLC Has Partners?

If your LLC has multiple owners and no qualifying employees, each owner may participate in the same Solo 401k plan. A spouse who actively works in the business could also join the plan.

📝 Note: Once a non-owner employee meets eligibility requirements, the plan must transition from a Solo 401k to a standard 401k plan.

✏️ Hypothetical Example:

Chris and Dana run a two-member LLC with no employees. Both of them can open accounts under the same Solo 401k plan. If they later hire a full-time staff member who qualifies, the plan would need to convert to a regular 401k.

What If My LLC Has Employees?

An LLC can only maintain a Solo 401k if it has no qualifying employees other than the owner (and possibly the owner’s spouse). 

Who counts as a qualifying employee? 

Your LLC loses Solo 401k eligibility if an employee meets the following criteria:

❌ At least age 21

❌ Working 500 hours or more per year for two consecutive years

Who does not count as a qualifying employee?

These types of workers do not affect your Solo 401k eligibility:

✅ Spouse working in the business

✅ Part-time employees working under 500 hours per year

✅ Independent contractors receiving 1099 income

✅ Employees under age 21

✅ Union employees

✅ Non-resident alien employees

📝 Reminder: The spouse exception is important. Even if your spouse works full-time, both of you may still qualify for the plan.

How to Open a Solo 401k as an LLC

Opening a Solo 401k as an LLC is a step-by-step process. Here’s how it typically works:

Step 1: Choose your plan provider

Review providers and compare features. For example, not all plans include a Roth option. Make sure the one you select matches the benefits you want.

Step 2: Obtain an Employer Identification Number (EIN)

Your LLC needs an EIN to establish a Solo 401k.

Step 3: Complete the application and adoption agreement

Fill out the required documents with your provider to formally set up the plan.

Step 4: Apply for an EIN for the Solo 401k trust

The trust becomes the legal owner of plan assets and requires its own EIN to open bank and brokerage accounts.

Step 5: Open bank and brokerage accounts

Set up accounts for the Solo 401k trust. If both traditional and Roth options are included, you’ll need separate accounts for each.

Step 6: Begin contributions and investments

Once the accounts are open, you can start funding the plan and making investments.

📌 If you set up a Solo 401k with Carry, the platform provides plan documents through your dashboard and includes built-in investment tools. This may reduce the need to open separate accounts with other providers.

In Summary

Setting up a Solo 401k through your LLC comes down to laying the groundwork properly — choosing the right plan, securing your EINs, and opening accounts that keep your retirement savings organized. Once established, the plan can serve as a powerful tool to grow your retirement wealth while giving you control over how you invest.

📌 If you’d like to keep building your knowledge, take a look at our other articles on Solo 401k strategies and retirement planning:

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