Can TWO Business Owners Open a SOLO 401k?
The name “Solo 401k” often leads people to assume the plan is strictly limited to a single individual. But that assumption is incorrect. This guide answers one of the most common questions self-employed business partners ask: can two business owners open and share a Solo 401k? The short answer is yes — and this post explains exactly how it works, including eligibility rules, contribution limits, separate holding accounts, and the powerful Mega Backdoor Roth Solo 401k strategy available to multi-owner businesses.
Watch: My Solo 401k Financial explains whether two business owners can open and share a Solo 401k plan
The Short Answer: Yes, Two Business Owners Can Share a Solo 401k
A Solo 401k is often described as a retirement plan for a one-person business. But what if the business has two owners? The answer is yes — two business owners may participate in the same Solo 401k plan, but only if the business does not have non-owner, full-time W-2 employees who must be covered under the plan (also known as common-law W-2 employees).
ℹ️ “Solo” Refers to the Business Type, Not the Headcount
The key to understanding this rule: Solo 401k does not always mean only one person can participate. It means the plan is for an owner-only business — and an owner-only business can have multiple owners, including a spouse-owner or spouse-employee.
Other Names for the Same Plan
A Solo 401k plan is designed for self-employed individuals or owner-only businesses. It’s often called by different names that all refer to the same plan type:
Regardless of the name used, the Solo 401k can cover more than one person in specific situations — including a business owner and spouse, two spouses who both work in the business, two business partners, or multiple owner-employees, depending on the business structure.
Eligibility Rules for a Multi-Owner Solo 401k
As long as the business does not employ any non-owner, full-time W-2 employees who are age 21 or older and work 1,000 hours or more in the business, two (or more) owners can open a Solo 401k together.
Who Can Be Excluded from Eligibility Counts?
The Spousal Exception
One important exception: a spouse who is working in the business does not have to be an owner of the business in order to participate in the plan. This is known as the spousal exception, and it’s one of the most powerful planning opportunities available — allowing both spouses to maximize their own retirement contributions under the same plan.
How Are Funds Held When There Are Two Owners?
A Solo 401k is a defined contribution plan that requires separate participant accounts for each participant — and for each source of funds. Even with just one participant, the plan typically uses three separate holding accounts:
💡 Example: Two-Participant Plan = Six Holding Accounts
When two spouses (or two business partners) are both self-employed in the same business, the business sponsors one Solo 401k plan — but each participant has their own three separate holding accounts (pre-tax, Roth, and voluntary after-tax). That means a two-participant plan typically has a total of six holding accounts — three for each participant — even though it remains just one plan.
Maximizing the Mega Backdoor Roth with Two Owners
The voluntary after-tax holding account is what’s used for the Mega Backdoor Roth Solo 401k strategy. The process works in steps: you first make a voluntary after-tax Solo 401k contribution into the voluntary after-tax holding account, and then convert those funds to the Roth Solo 401k (or Roth IRA).
💡 Example: Doubling Household Mega Backdoor Roth Contributions
Both spouses (or business partners) can each make their own voluntary after-tax Solo 401k contribution into their respective holding account. If the maximum voluntary after-tax contribution for the tax year is $72,000 per person, that means both participants could each contribute $72,000 — for a combined household total of $144,000 — and then convert those amounts to their respective Roth Solo 401k funds. That’s a significant way to maximize household retirement savings using the Mega Backdoor Roth strategy across two owners in the same plan.
How Are Contributions Calculated for Each Owner?
Each owner’s contribution limit is calculated separately under the Solo 401k plan, based on that owner’s own compensation or self-employment income. The plan allows for employee contributions, employer contributions, and voluntary after-tax contributions — and one owner’s contribution amount has no impact on what the other owner can contribute.
ℹ️ One Owner Can Contribute While the Other Doesn’t
Contribution amounts are not impacted by the other owner’s contributions. In fact, in a given year, one owner may contribute to the plan while the other owner does not — both scenarios are perfectly acceptable under a single shared Solo 401k plan.
Worked Example: S Corp with Two Owners
Consider an S corporation with two business owners, each receiving W-2 wages from the business. If Owner A receives $100,000 of W-2 gross wages, here’s how their contribution would be calculated:
⚠️ Where Each Contribution Reduces Taxable Income
The $25,000 employer profit-sharing contribution reduces taxable income on the S corporation side, since it’s an employer contribution. The $24,500 employee contribution reduces taxable income on the personal Form 1040 tax return. In this example, the individual could still make an additional Mega Backdoor Roth Solo 401k contribution on top of these amounts, provided they have enough earned income to support it.
Because each owner’s contribution is calculated independently based on their own W-2 wages or self-employment income, two owners with different compensation levels will simply have different contribution maximums — but both remain part of the same single Solo 401k plan.
One Plan, One Fee — Even with Two Owners
A common question: if two members of the same S Corp (or domestic partners) both participate, do they need two Solo 401k plans? The answer is no — it’s considered just one Solo 401k plan.
💡 My Solo 401k Financial’s Flat-Fee Structure
Many competitors charge double the fees when there are two participants in the plan — essentially two separate setup fees, even though it’s the same business and the same plan. My Solo 401k Financial takes a different approach: when both spouses or both owners are self-employed in the same business, opening the plan results in just one fee — one plan, one annual fee — since both participants are working under that same self-employed business.
Can Each Owner Take a Participant Loan?
Yes — each owner in a multi-owner Solo 401k can take their own participant loan, but the loan amount must be calculated based on that owner’s own respective funds in the plan. Owners cannot “piggyback” off of each other’s account balances to increase their borrowing limit.
ℹ️ Still Just One Plan, One Fee
Even though each owner can independently access their own participant loan, the plan is still considered just one Solo 401k plan — and each owner is only being charged for that one plan. This is quite different from competitors, who will often charge all the fees associated with a two-participant plan as if it were two separate plans.
What Happens If You Hire Employees Later?
It’s important to think ahead about what happens after your Solo 401k is already established. If the business later hires employees, the first step is identifying whether those new hires are W-2 employees or 1099 contractors.
⚠️ The Long-Term Part-Time Employee Rule (Secure Act)
If a new hire is a W-2 employee who works for two consecutive 12-month periods and meets the hours threshold, the business may need to close the Solo 401k plan down. Under the Secure Act, this rule was reduced to a two-year lookback. If this situation applies to your business, you would need to close the plan — so monitoring employee hours and tenure proactively is essential for any multi-owner Solo 401k.
What If Each Owner Has a Separate Business?
Things change if each owner is self-employed in their own separate business rather than the same shared business. In that case, the two owners would generally each need to evaluate their own business for Solo 401k eligibility independently — rather than sharing one plan together.
Watch Out for Controlled Groups and Affiliated Service Groups
Before opening a Solo 401k, you must also confirm that the business is not part of a controlled group or affiliated service group — a designation that can create complications for plan eligibility across multiple businesses.
⚠️ Example: Owning Two Businesses Can Disqualify the Solo 401k
Suppose you own two businesses. Business One has two owners and no non-owner full-time W-2 employees — so on its own, it would qualify for a Solo 401k. However, if you also own Business Two, and Business Two does employ full-time W-2 employees, that can be a problem. Because of how controlled group and affiliated service group rules work, you may not be able to open a Solo 401k for Business One — even though Business One alone has no disqualifying employees — simply because Business Two has them. Anytime you’re involved in multiple businesses, pause and work with your CPA or with My Solo 401k Financial to determine eligibility before opening a plan.
Don’t Confuse Solo 401k Rules with Full-Time Employer 401k Rules
A Solo 401k is practically similar to a full-time employer 401k plan — but not in all cases, especially regarding contribution amounts, calculations, and deadlines. The contribution rules and deadlines for a Solo 401k are distinct from those governing a traditional employer-sponsored plan, so it’s important not to apply employer-plan logic directly to a Solo 401k situation.
Pre-Opening Checklist for Two Owners
Before two owners open a Solo 401k together, they should confirm the following:
ℹ️ Don’t Confuse the Auto-Contribution Credit with the Tax Credit
Many CPAs and tax professionals tend to lump the auto-contribution tax credit together with other plan startup tax credits, but they are two separate credits. The Solo 401k plan only qualifies for the auto-contribution credit — a way the government subsidizes the cost of maintaining a Solo 401k plan over time, up to $1,500. To qualify, your income generally needs to be earned income — not passive income, capital gains income, or Social Security income.
Already Have a Solo 401k? How Restatement Works
If you already have an existing Solo 401k plan — whether as a single owner or with a partner — and want to switch providers, you don’t need to start from scratch. This process is called a restatement.
What Is a Restatement?
A restatement means you simply change from your current Solo 401k provider to a new provider, such as My Solo 401k Financial. Key facts about restating a plan:
- You can typically keep the same EIN number that was already issued for the plan
- You can keep the same plan name
- Because you are not closing the plan — only changing providers — a restatement does not trigger having to issue a distribution-related form
- You will need the original plan’s effective date (found in the existing plan’s adoption agreement)
💡 Example: Restating a Solo 401k from Fidelity
My Solo 401k Financial regularly restates Solo 401k plans that currently sit at Fidelity. The process involves opening new, non-prototype, investment-only brokerage accounts at Fidelity under the My Solo 401k Financial plan, and then internally transferring the existing securities and cash from the old Fidelity Solo 401k account to the new Fidelity brokerage account. The plan can also work with other brokerage firms or banks — including Interactive Brokers, Schwab, or any institution willing to work with the plan provider.
One Plan with Maximum Flexibility
When drafting a Solo 401k plan, My Solo 401k Financial drafts it for maximum flexibility under the law — including the Mega Backdoor Roth strategy, the ability to invest in alternative investments and equities, real estate, and participant loans. Unlike providers who charge separate fees for separate features, a flat fee covers all services included under the plan.
Key Takeaways: Two Business Owners and the Solo 401k
Ready to Open a Solo 401k for You and Your Business Partner?
Whether you’re opening a new Solo 401k with a spouse or business partner, or restating an existing plan from another provider, My Solo 401k Financial can help you set up the right plan structure with maximum flexibility — including the Mega Backdoor Roth strategy, participant loans, and alternative investments.
Next Steps:
Open a Solo 401k Account Today
|
Visit My Solo 401k Financial
