Solo 401k and 1099 Employees Question

QUESTION: I am thinking about opening a Solo 401k account and wanted to verify the
eligibility before I started filing the application.

I have a Sole proprietorship business and I have three individuals who I pay
with a 1099. They all have assigned a 1099 working agreement.

There are no employees in my business who get paid with a W-2 except for
myself.

Am I good to proceed with establishing a self-directed Solo 401k since I only employee independent contractor (1099 employees)?

ANSWER: As long as you don’t have any full-time W-2 employees, defined as those working 1000 hours or more, and you only employee 1099 employees (independent contractors), you can open a Solo 401k.  

You can establish an Individual 401k also referred to as a Solo 401k as long as you do not have any W-2 employees that work  1000 hours  or more per year. Independent contractors employed by your business would not disqualify you from establishing this retirement plan.

What’s more, the following employees can be excluded from a Solo 401k plan:

• Have not attained age 21;
• Have not completed a year of service; or
• Are covered by a collective bargaining agreement that does not provide for participation in the plan, if retirement benefits were the subject of good faith bargaining.

Thanks,

AJ