Understanding Solo 401k rules can get more complicated once part-time employees enter the picture. Starting in 2025, the SECURE Act 2.0 requires certain long-term, part-time workers to be included in retirement plans. This means small-business owners and self-employed individuals need to know which employees qualify, how contributions are handled, and what compliance steps apply.
For example, a freelancer who hires a part-time assistant or an entrepreneur running a small team may face new responsibilities under these rules.
In this article, you’ll find a clear overview of eligibility requirements, 2025 contribution limits, and important reporting deadlines. The goal is to explain the essentials in plain language so you can manage your Solo 401k with confidence and avoid compliance mistakes.
📌 Also read: What Is a Solo 401k? Rules, Eligibility, and FAQ for 2025
What Is a Solo 401k and Why Part-Time Employees Matter
A Solo 401k, or one-participant 401k, is designed for self-employed individuals or small-business owners with no full-time employees other than a spouse. It combines two types of contributions:
✅ Employee contributions – Salary-deferral contributions you make from your own compensation.
✅ Employer contributions – Profit-sharing contributions you make as the business owner.
This dual structure allows potentially higher retirement savings compared to other plans, provided you remain compliant with IRS rules.
📝 Note: Contribution limits depend on income definitions that vary by business type (net income for sole proprietors, W-2 wages for S corps, etc.). The income required to reach the maximum limit also varies.
Solo 401k Overview and Benefits for Small Businesses
- Dual contribution role: For 2025, you may contribute up to $23,500 in employee contributions, plus a $7,500 catch-up contribution if age 50 or older. On top of that, you may add employer contributions of up to 25% of compensation. The combined limit is $70,000, or $77,500 with catch-up contributions.
- Simplified compliance: When the plan covers only the owner (and spouse), there is no annual nondiscrimination testing requirement.
- Optional features: Some Solo 401k providers include Roth contributions or loan features. Loans are typically limited to 50% of your account balance or $50,000, whichever is lower.
✏️ Hypothetical Example:
A 52-year-old consultant earns $100,000 in net income. They could defer $23,500 as an employee contribution, add a $7,500 catch-up, and contribute up to $25,000 as the employer portion—potentially saving $56,000 for retirement in one year (well under the $77,500 cap).
SECURE Act 2.0 and Rules for Long-Term Part-Time Workers
Beginning in 2025, new rules under SECURE Act 2.0 expand eligibility for part-time employees:
✅ Any employee age 21 or older who works at least 500 hours per year for two consecutive years must be allowed to make elective deferrals into the plan.
✅ These workers must be included alongside full-time staff once they meet the service threshold.
Compliance considerations:
- Excluding eligible part-time employees may trigger nondiscrimination testing. This could limit your own contributions or create the need for IRS corrections.
- Employers must track service hours carefully to know when a part-time employee qualifies.
- Plan documents must be amended by December 31 2026 (or 2028 for collectively-bargained plans) to incorporate SECURE 2.0’s LTPT rules, per IRS Notice 2024-2.
📝 Note: Even if part-time employees qualify to defer their own salary, employers are generally not required to make matching or profit-sharing contributions for them.
Eligibility Rules for Part-Time and Long-Term Part-Time Employees
Once you confirm which part-time employees qualify, the next step is understanding how contributions work and what compliance obligations apply. The IRS has specific rules on deferrals, employer contributions, and reporting that every plan sponsor needs to follow.
What Counts as a Long-Term Part-Time Employee (500 Hours for 2 Years)
Starting in 2025, the SECURE Act 2.0 requires Solo 401k plans to cover certain part-time employees. To qualify as a long-term part-time (LTPT) participant, two conditions must be met:
✅ Age requirement: The employee must be at least 21 years old by the end of the second 12-month eligibility period.
✅ Service requirement: The employee must work at least 500 hours in each of two consecutive 12-month periods.
Once both conditions are satisfied, the employee can make elective salary deferrals. However, the employer does not have to make matching or nonelective contributions.
Exemptions for Certain Employees
Plans can still exclude some workers without breaking coverage rules:
- Under age 21 or insufficient service: Employees younger than 21 or those who do not meet the plan’s service requirement (one year of service or the LTPT test) may be excluded.
- Union employees: Workers covered by a collective bargaining agreement are excluded if retirement benefits were negotiated in good faith.
- Seasonal employees: Employees who usually work six months or less in a calendar year may be excluded, if the rule is applied consistently and the plan continues to meet the minimum coverage test under IRC Section 410(b).
Rules for Spouses and Controlled Business Groups
- Spouse participation: In a one-participant plan, the business owner’s spouse counts as a participant if employed by the business. Once eligible, the spouse must be allowed to defer contributions.
- Controlled groups: If you own or control more than one business, all employees across those entities are combined for 401k testing and eligibility under IRC Section 414. You cannot set up multiple Solo 401ks to bypass nondiscrimination rules. Contributions and coverage must be measured across the group as a whole.
Contribution Rules and Compliance Requirements
Running a Solo 401k means keeping up with strict contribution rules and annual compliance requirements. These rules affect how much you can save, what deadlines apply, and how your plan must be managed to remain IRS-qualified.
Employee and Employer Contributions (2025 Limits)
For 2025, Solo 401k contribution limits are:
✅ Elective Deferrals – Up to $23,500 of salary may be deferred.
✅ Catch-Up Contributions (ages 50–59 and 64+) – An additional $7,500.
✅ Super Catch-Up (ages 60–63) – Up to $11,250 under SECURE 2.0, if your plan allows Roth or after-tax catch-ups.
✅ Total Annual Additions – Employee deferrals plus employer profit-sharing cannot exceed $70,000 (or $77,500 with catch-up).
These combined limits give Solo 401k participants much higher saving potential than an IRA.
📝 Note: Contribution amounts depend on your net self-employment income. A third-party administrator (TPA) or CPA can help calculate exact amounts.
✏️ Hypothetical Example:
A 61-year-old consultant defers $23,500 of salary. She adds the $11,250 super catch-up, plus an employer profit-sharing contribution of $30,000. Her total contribution is $64,750, well under the $77,500 cap.
Form 5500 Filing and Plan Amendment Deadlines
Solo 401k plans also carry filing and amendment requirements:
✅ Form 5500-EZ – Required if plan assets exceed $250,000 at year-end. Smaller plans are exempt.
✅ First Filing Year – For calendar-year plans, the first required return is for 2025. It’s due July 31, 2026, with an option to extend to October 15, 2026 using Form 5558.
✅ Plan Amendments – To apply SECURE 2.0’s long-term part-time rules, update plan documents by December 31, 2026.
❌ Missing a filing or amendment deadline may trigger IRS penalties and jeopardize your plan’s tax status.
📌 Also read: Form 5500-EZ: How to File, Deadlines & Penalties
Recordkeeping and Compliance Best Practices
Strong recordkeeping is the backbone of Solo 401k compliance.
✅ Retention Periods – Keep payroll, hours, elections, contributions, and benefit calculations until all benefits are paid and audit periods close. Many records should be stored indefinitely.
✅ Accurate Tracking – Maintain reliable systems to log compensation, eligibility, and deferral elections. This supports compliance with the 500-hour LTPT test.
✅ Error Correction – Review plan operations regularly. If mistakes occur, use IRS or DOL correction programs (such as EPCRS or VCP) to fix them promptly.
📝 Note: Organized records make annual reporting easier and protect your plan during an audit.
Choosing a Solo 401k Custodian or Provider
Selecting the right custodian affects both compliance and participant experience. Compare providers on:
✅ Service Scope & Fees – Check what’s included (documents, recordkeeping, Roth, loans) and request a written fee schedule.
✅ Fidelity Bond & Licensing – Confirm bonding, licensing, and that advisors have no unresolved disciplinary actions.
✅ Technology & Security – Look for strong cybersecurity practices such as SOC audits and encryption.
✅ Experience & Support – Providers familiar with Solo 401k rules, including LTPT eligibility, can help prevent costly errors.
📝 Note: Keeping a written record of your selection process helps fulfill fiduciary duties under ERISA section 404(a).
Key Takeaways
As you prepare for how part-time and long-term part-time employees may affect your Solo 401k, it is important to keep your plan updated. Make sure your plan document reflects the new 500-hour, two-year rule, and track employee hours carefully so eligibility is clear.
- Monitor contributions to stay within the 2025 limits.
- If plan assets exceed $250,000, you must file Form 5500-EZ.
- Work with a custodian familiar with SECURE Act 2.0 changes to ensure compliance.
These practices can make plan administration more manageable and reduce the chance of compliance issues, while also ensuring that you and your eligible employees receive the full benefits of the Solo 401k.
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