What Kind of Freelancers Can Open a Solo 401k?

Freelancers often take on many roles. They might be a designer, a marketer, an accountant, and sometimes, their own retirement planner. Without access to an employer-sponsored plan, saving for the future can feel confusing or even out of reach.

A Solo 401k is a flexible retirement option created for self-employed individuals. It works well for freelancers, consultants, and side hustlers who want higher contribution limits, tax benefits, and full control over their investments.

However, not every freelancer qualifies. Rules around income, business structure, and employees can be easy to overlook.

This guide explains who’s eligible to open a Solo 401k, what type of income counts, and the key paperwork and deadlines to keep in mind. If you’re unsure whether your freelance work qualifies, this article will walk you through the basics.

Who Can Open a Solo 401k?

A Solo 401k is designed for self-employed individuals with no full-time employees (other than a spouse). If you earn income from freelance or business activities and meet the requirements, you may be eligible. Here’s a closer look.

Eligible Freelance Business Types

Freelancers with the following business structures may qualify for a Solo 401k:

✅ Sole Proprietors and Independent Contractors

If you report self-employment income on Schedule C or receive 1099 payments, you likely meet the requirement. Your net earnings, after deducting self-employment taxes, count as eligible compensation for Solo 401k contributions.

✅ Single-Member LLCs

If your LLC is taxed as a disregarded entity, it’s generally treated like a sole proprietorship. You can sponsor a Solo 401k based on your net self-employment income.

✅ S-Corps and Partnerships (Owners Only)

As an owner-employee of an S-Corp, your W-2 wages can be used for Solo 401k contributions. If you’re a partner, you may contribute based on your adjusted share of self-employment earnings reported on your K-1.

Employee Restrictions

To remain eligible for a Solo 401k, your business must meet specific employee-related criteria:

✅ No Full-Time Non-Owner Employees

You can’t have full-time employees other than yourself or your spouse. “Full-time” typically means working 1,000 hours or more in a year. If you hire full-time staff, you’ll need to switch to a different type of retirement plan.

✅ Spouses Can Participate

If your spouse works for your business and earns compensation, they’re allowed to participate. This can effectively double your household’s contribution limits.

✅ Understanding Part-Time Employee Rules

Starting in 2025, you must include certain part-time workers in your plan if they work at least 500 hours per year for two consecutive years. If that happens, your plan no longer qualifies as a Solo 401k and must be updated accordingly.

📝 Note: IRS rules still define full-time status as working 1,000+ hours annually.

Freelancers With a Side Job

Even if you have a W-2 job elsewhere, you can still open a Solo 401k using your self-employment income. Just keep in mind that your elective deferral limits apply across all 401k plans you contribute to in a given year.

Income Rules for Solo 401k Eligibility

To contribute to a Solo 401k, you must earn income from self-employment. This includes work as a freelancer, sole proprietor, or small business owner. 

However, not all types of income qualify. The IRS sets clear guidelines on what counts, how contributions are calculated, and what happens if your business doesn’t earn a profit.

What Qualifies as Earned Income

Your contributions must come from earned income. Investment gains or passive income are not eligible.

For sole proprietors and independent contractors, earned income generally means your net profit reported on IRS Schedule C.

If you own an S-Corp or C-Corp, it refers to W-2 wages paid to you by your own business through payroll.

For sole proprietors and partners, net earnings must be reduced by half of your self-employment tax and any Solo 401k contributions made for yourself. This adjusted figure is the amount used to calculate your contribution limit.

How Employer Contributions Are Calculated

A Solo 401k lets you contribute in two ways — as the employee and the employer. The employer portion is based on your business income and depends on how your business is structured.

If you are self-employed as a sole proprietor or a partner, your business can contribute up to 20 percent of your adjusted net earnings.

If your business pays you W-2 wages, such as in an S-Corp, it can contribute up to 25 percent of your gross compensation.

For 2025, the total contribution limit — including both employee and employer contributions — is $70,000. If you are age 50 or older and eligible for catch-up contributions, the limit increases to $77,500.

Is There a Minimum Income?

There is no official income minimum required to open or keep a Solo 401k. Freelancers with inconsistent or modest earnings can still start a plan.

However, if your business does not generate a net profit, you will not be able to make an employer contribution. That’s because there is no qualifying income to base it on.

You may still be able to make a small employee contribution if you receive W-2 wages from your own business.

Setup and Compliance Requirements

Starting a Solo 401k involves more than just choosing a provider and picking investments. You’re both the employer and employee, so you’re also responsible for plan compliance.

Here are the key requirements to understand before opening a Solo 401k in 2025.

Apply for an EIN

The IRS requires that every Solo 401k plan have an Employer Identification Number (EIN)—even if you operate as a sole proprietor. The EIN allows the IRS to identify your plan separately from your Social Security Number. Most plan providers will not open an account without one.

✅ Required for all Solo 401k plans
✅ Applies even to sole proprietors without a formal business
✅ Must be obtained before setting up the plan

📝 Tip: You can apply online using the IRS EIN Assistant. It’s free and usually takes only a few minutes.

Setup and Funding Deadlines

The IRS sets deadlines for establishing your plan and making contributions. If you want contributions to count for the 2025 tax year, timing matters.

Establish the Plan by December 31

Your plan must be created and signed by December 31, 2025. You don’t need to fund it immediately, but the plan must be in place. If you miss this deadline, you won’t be able to make employee deferrals for 2025.

Sole proprietors and single-member LLCs may still make first-year deferrals by the tax filing deadline, under SECURE 2.0 §317.

Elect Employee Contributions by Year-End

You must document your intended employee contributions by December 31.

However, SECURE 2.0 allows sole proprietors and single-member LLCs to make this election by the tax filing deadline—April 15, 2026—as long as contributions haven’t already been made.

Fund Employer Contributions by the Tax Deadline

Employer contributions can be made by your business’s tax filing deadline, including extensions. This means:

Annual Reporting

Solo 401k plans have fewer reporting requirements than standard 401k plans, but there is one important form to track.

If your plan holds $250,000 or more in assets at year-end, or if you are closing the plan, you must file Form 5500-EZ. This form is due by July 31 of the following year. You can file it online through the EFAST2 system, or by mail if eligible.

Final Thoughts on Solo 401k Eligibility for Freelancers

A Solo 401k can be a powerful retirement tool for self-employed individuals, but it’s not a one-size-fits-all option. Eligibility depends on several factors, including how your freelance business is structured, the type of income you earn, and whether you have employees.

For those who qualify, the plan offers high contribution limits, flexible investment options, and valuable tax advantages. But understanding the rules upfront, especially around income calculations and setup deadlines, is key to making it work.

If your freelance work checks the right boxes and you want to build long-term savings, a Solo 401k may be worth exploring. Just be sure to stay informed and revisit your plan as your business grows.

📌 Want to explore more ways to manage money as a freelancer? Read:

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