Do 1099 Subcontractors Have to Be Covered by Your SEP IRA or Solo 401(k)?

The short answer

No. A properly classified independent contractor is not an employee, and every employer-sponsored retirement plan, including the SEP IRA and the Solo 401(k), defines eligibility in terms of employees. You do not have to cover your subcontractors, you cannot cover them without asserting they are employees, and paying them does not disqualify you from a Solo 401(k).

The long answer matters more, because the whole thing turns on the word "properly," and because owners who understand the rule still want to do something for the people who do half their work. The Gigaverse business owner program is built for that second impulse. This article covers the rule first.

Who a SEP must cover

A SEP IRA must be offered to every employee who is at least 21, has worked for you in three of the last five years, and earned at least the indexed compensation threshold ($800 for 2026) in the current year. You can adopt less restrictive rules, not more restrictive ones. Every eligible employee must receive the same percentage-of-compensation contribution the owner receives.

"Employee" here means a common-law employee, determined under the IRS's control test: behavioral control, financial control, and the nature of the relationship. A person who sets their own hours, uses their own equipment, carries their own liability, works for other clients, and invoices you for results rather than time is a contractor. A person who works your schedule, on your equipment, under your direction, exclusively for you, is an employee regardless of what the contract says or which form you file.

If your six subcontractors are genuine contractors, they are outside the SEP entirely. You contribute for yourself and any W-2 staff.

Who a Solo 401(k) must cover

A Solo 401(k), formally a one-participant 401(k), is a standard 401(k) that is exempt from most administrative requirements because it covers only the business owner and, optionally, the owner's spouse. The exemption depends on the business having no other eligible common-law employees. Standard 401(k) eligibility can exclude employees under 21 and those with less than a year of service, so a part-time W-2 employee working under 1,000 hours a year (500 hours for long-term part-time rules) may not blow up the plan, but a full-time employee will.

Contractors do not count against the one-participant status. A consultant who pays six 1099 subcontractors and no W-2 staff can adopt a Solo 401(k), defer up to $24,500 in 2026, add an employer contribution of roughly 20 percent of net self-employment earnings (25 percent of W-2 compensation if incorporated), and reach the $72,000 total, or $80,000 at 50 and older.

The reclassification cliff

The reason to take classification seriously is what happens if it is wrong.

If a worker you treated as a contractor is determined to be an employee, either by the IRS, a state agency, or a court, then for retirement-plan purposes they were an employee all along. For a SEP, that means you failed to make required contributions for an eligible employee, which is an operational failure that must be corrected, generally by making up the contributions plus earnings. For a Solo 401(k), it means your plan was never a one-participant plan: it must cover the employee, pass coverage and non-discrimination testing, file a full Form 5500, and possibly refund excess owner contributions. The Employee Plans Compliance Resolution System exists for exactly these situations, but it is not free and it is not fast.

State tests add to the risk. California's ABC test, and similar tests in Massachusetts, New Jersey, and elsewhere, presume a worker is an employee unless the hiring business proves all three prongs, including that the work is outside the usual course of the business. A landscaping company paying landscapers on a 1099 is at real risk under an ABC test even when the federal control test would come out the other way.

State auto-IRA mandates follow the same line. CalSavers reaches every California employer with one or more W-2 employees as of January 1, 2026, and excludes contractors (https://gusto.com/resources/states/retirementmandates). A business whose only workers are contractors is not subject to the mandate; a business that gets reclassified suddenly is.

The behaviors that create risk when you try to help

Owners who want to do something for their subcontractors' retirement often reach for the tools they know: matching, payroll deduction, a company plan. Each of those is evidence of an employment relationship.

• •Contributing to a contractor's retirement account. An employer contribution is, by definition, something employers do. If you match a contractor's IRA, you have created a fact a plaintiff's lawyer will use.
• •Deducting from a contractor's payment. Payroll deduction implies payroll. Contractors are paid on invoices.
• •Describing it as a benefit. "Our contractors get retirement benefits" is a sentence that reads as employment.
• •Making participation a condition of work. Conditioning engagement on enrollment is control.

What you can do

You can give your subcontractors information and access. The features that keep the arrangement clean:

• •The contractor opens the account in their own name, for their own business. A contractor is a sole proprietor and can adopt their own Solo 401(k) or SEP, or fund a Roth IRA ($7,500 in 2026).
• •The contractor funds it from their own bank account after you pay their invoice. You never touch the money.
• •You describe it as a resource, not a benefit. "Here is an app that helps 1099 workers figure out retirement contributions" is fine.
• •You are not paid per contractor who signs up. If you were, the payment would look like transaction-based compensation under Exchange Act Section 15(a) and FINRA Rule 2040, and if it were a share of advisory fees it would violate the rule that an SEC-registered adviser cannot share fees with unregistered parties. Gigaverse pays business owners who refer contractors only a share of paid subscription revenue or a flat per-seat licence, discloses that to the contractor as required by SEC Marketing Rule 206(4)-1 when compensation exceeds $1,000 in twelve months, and notes that some states require paid solicitors of advisory clients to register as investment adviser representatives. Details are on the how we make money page.

A useful side effect: pointing contractors to their own retirement accounts, for their own businesses, reinforces that they run businesses. That is a fact that helps you under any classification test.

What your contractors can actually do with it

A subcontractor netting $60,000 can fund a Roth IRA at $7,500, or adopt a Solo 401(k) and shelter about $35,700 (the $24,500 deferral plus roughly $11,200 employer contribution) in 2026. Only 15 to 18 percent of self-employed people use a Solo 401(k) (https://www.solo401k.com/blog/solo401k-adoption-growth-statistics-usa), mostly because nobody showed them the math. Lower-income contractors will also become eligible for the federal Saver's Match on January 1, 2027, up to $1,000 paid into a non-Roth IRA, with the Roth interaction explained on Gigaverse's Saver's Match Roth rule page. The free tools compute all of it from a Schedule C estimate.

Where Gigaverse fits

Gigaverse is a subscription retirement app for 1099 workers, and the business-owner program is a way to hand your subcontractors a resource without enrolling them in anything. Today the app offers a Roth IRA through a FINRA/SIPC-member broker-dealer; it opens Solo 401(k) and SEP IRA plans through its custodian partner, with applications open now, and provides the contribution math, tracking, and a year-end CPA hand-off alongside them. Gigaverse is pursuing SEC RIA registration, does not guarantee returns, and pays referring owners only through subscription revenue share or flat per-seat licences. Program details are on the business owner partner page.