Author Topic: Self employed - can husband and I both fund a solo 401k  (Read 253 times)

lilybluerose

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Self employed - can husband and I both fund a solo 401k
« on: March 08, 2021, 07:54:49 AM »
Hi! My husband and I file our taxes jointly. I have an accountant who handles all of this. I have an LLC business, and its filed as an scorp. I have a hard time grasping all of the legalities and information surrounding taxes/law/retirement info. I am guessing that since we file jointly, it is like saying that is how much we made together, 50/50 yah?

We both have separate roth iras through vanguard that we contribute the max yearly.

I recently opened a solo 401k and am having trouble wrapping my head around that one. For 2021 I put in $19500 as an employee, and I am waiting to hear from my tax guy on how much I can contribute as an employer. From my understanding it is 25% of my net income that is displayed on a w2 yes?

I am curious if my husband could also open a solo 401k and fund it the same way, or will income determine that since we file jointly? Would he be able to open one and put in $19500 in his as well? I cant find any good info on that online. Thank you!

My husband helps with the business and has no other income btw.

terran

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Re: Self employed - can husband and I both fund a solo 401k
« Reply #1 on: March 08, 2021, 09:14:46 AM »
I'm a sole proprietor, but yes, I think the employer contribution for an S-corp is up to 25% of W2 box 1.

Your husband can contribute to a solo 401(k) (and the receive the same employer contribution match), but only if he is paid by the business. If he works in the business then it seems likely that it would be a good idea to pay him a reasonable wage/salary. Make sure you can justify the amount you pay him based on the amount of work he does and the skill level required -- basically, pay him what you would pay an unrelated person to do the same work.

If you're currently taking some of your business income as an owner's draw (not subject to FICA taxes) then shifting some of that to income for your husband will increase your FICA taxes both for him and for the business, so you'll have to see if the 401(k) deduction makes up for that. This will also help him earn social security credits, which could be good.

It would probably be a good idea to work with your accountant to put some actual numbers to all this based on your situation.

lilybluerose

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Re: Self employed - can husband and I both fund a solo 401k
« Reply #2 on: March 08, 2021, 04:31:38 PM »
Thanks! Ill see what tax preparer says as well