First Employee Hired: Review Your Solo 401(k)

Review employee eligibility under the plan and current rules. Hiring staff is a trigger for plan administration review, not a reason to assume the plan stays owner-only indefinitely.

A business-owner scenario

A consultant with an owner-only plan hires a part-time assistant who may become full time. The owner wants to wait until tax season to inform the provider. Eligibility tracking should begin with employment facts and service records rather than the eventual W-2 total alone.

Illustrative scenario, not a client result.

Work through the transaction

Notify the provider about the hire and related businesses.
Track age, service and hours using the plan's rules.
Review testing, filings and plan changes before eligibility arises.

The mistake that changes the result

Describing someone as part time does not settle every retirement-plan eligibility question.

Records that resolve the question

Plan adoption agreement.
Hire date.
Hours records.
Ownership and related-employer information.

The decision to document

Ask the administrator for a written eligibility calendar and instructions for payroll. If the employee should already have been included, evaluate the correction process promptly instead of excluding them for convenience.

Which fact changes the answer?

An employee not yet eligible still creates a tracking obligation. Record service from the beginning and tell the administrator about changes. Waiting for the employee to ask about benefits can leave the owner without the records needed to apply eligibility rules correctly.

Explore owner retirement commitments advisory · Discuss your situation with AE Tax Advisors

Sources and scope

General educational information prepared with AI assistance. No individual professional review is represented. Apply the relevant tax-year rules to the actual records. Editorial policy · AI disclosure.

I hired my first employee. Is my solo 401(k) still appropriate?