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Help with Solo and Spousal Solo 401K

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  • Help with Solo and Spousal Solo 401K

    I have recently started locums work and have submitted paperwork to open a Solo-401K for myself. I also have W2 work and have funded my $18,000 in employee Roth 401K through that job for this year.

    Am I correct, that I can have both a work Roth 401-K with my W2 and a solo 401-K with my 1099?

    Am I correct, that I am also still able to something with my 1099 money with the employee portion and put up to 20% (filing as an individual, not S- C-corp, etc) in my Solo-401K this year and then do the same into next year, still funding my work Roth 401K ($18,000) with my W2 money? My CPA is under the impression that I need to do a SEP-IRA for this year and that I need to link the employer $18,000 with any profit sharing under a single 401-K.

    My CPA also tells me that I need to do W2s for my husband to have him open his own Solo-401K as my book/record keeper and that he can work any number of hours with this. Is this correct or is there something different for spouse v other employee?

    Is there and if so, where can I find the requirements for a spouse's work to qualify to join my Solo 401-K? For example, I saw on one site that he would need to work 2 hours per week with book-keeping, etc to qualify (not sure if this requires a W2)?

    How do you document hours that spouse works? Is this why a W2 is needed?

    Thank you in advance for the help!!

  • #2




    I have recently started locums work and have submitted paperwork to open a Solo-401K for myself. I also have W2 work and have funded my $18,000 in employee Roth 401K through that job for this year.

    Am I correct, that I can have both a work Roth 401-K with my W2 and a solo 401-K with my 1099?

    Am I correct, that I am also still able to something with my 1099 money with the employee portion and put up to 20% (filing as an individual, not S- C-corp, etc) in my Solo-401K this year and then do the same into next year, still funding my work Roth 401K ($18,000) with my W2 money? My CPA is under the impression that I need to do a SEP-IRA for this year and that I need to link the employer $18,000 with any profit sharing under a single 401-K.

    My CPA also tells me that I need to do W2s for my husband to have him open his own Solo-401K as my book/record keeper and that he can work any number of hours with this. Is this correct or is there something different for spouse v other employee?

    Is there and if so, where can I find the requirements for a spouse’s work to qualify to join my Solo 401-K? For example, I saw on one site that he would need to work 2 hours per week with book-keeping, etc to qualify (not sure if this requires a W2)?

    How do you document hours that spouse works? Is this why a W2 is needed?

    Thank you in advance for the help!!
    Click to expand...



    1. Yes, you can have both a work Roth 401-K with my W2 and a solo 401-K with my 1099

    2. There is a word missing from the 2nd question. "contribute"? You can contribute 20% as the "employer" but you have already filled out your employEE space at the W2 job.

    3. Your CPA is wrong that you need to have a SEP. However he is correct that you will need to aggregate your 401k's for purposes of the employEE contribution.

    4. Your CPA is correct that you need to pay your husband by W2 unless your husband is contracting for you and, therefore, opens a SOLO-k for his own business.

    5. Your husband can be paid a salary, not by the hour, if you choose. The important factors are that his pay is ordinary and necessary and that he does meaningful work for the pay, documented by you as you would for another employee. Probably more stringently b/c of the familial ties.

    6. "How do you document hours that spouse works?" Ask your CPA - Excel?

    7.  No, this is not why a W2 is needed. It's because he is your employEE.


     
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      Thank you Johanna!

      When you say that I will need to aggregate your 401k’s for purposes of the employEE contribution. This just means that I am limited to the $18,000 for the employEE contribution as a total, so I am unable to contribute additional funds to this for the year through my 1099 job as I maxed this with the W2 job?

      So with what you have said, is there a minimum number of hours or minimum salary that my husband would need to work to be listed on a W2 to qualify and open him his own Solo 401K under me? I think I will only be doing locums for the next 6 months or so and wanted us to be able to open Solo 401-Ks in this time to have the option of rolling other old job 401Ks into them in the future as desired (to leave the option for the Backdoor Roth in place). As this is the case, any recommendation on the simplest/least costly way to set this up?

      Thank you again!

      Comment


      • #4


        When you say that I will need to aggregate your 401k’s for purposes of the employEE contribution. This just means that I am limited to the $18,000 for the employEE contribution as a total, so I am unable to contribute additional funds to this for the year through my 1099 job as I maxed this with the W2 job?
        Click to expand...


        Yes.


        So with what you have said, is there a minimum number of hours or minimum salary that my husband would need to work to be listed on a W2 to qualify and open him his own Solo 401K under me? I think I will only be doing locums for the next 6 months or so and wanted us to be able to open Solo 401-Ks in this time to have the option of rolling other old job 401Ks into them in the future as desired (to leave the option for the Backdoor Roth in place). As this is the case, any recommendation on the simplest/least costly way to set this up?
        Click to expand...


        I know of no minimum. I also know of no simple way to do this since you'll have to file for payroll tax accounts and that is kind of messy. Do you have much in your old 401k's? If not, you might seriously consider converting to Roth IRAs now and paying the taxes. If you are a new attending this year, might make sense. Probably want to get a tax projection from your CPA and discuss how involved setting up payroll will be.
        Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

        Comment


        • #5
          I would point out that there is another option other than W-2 employment to provide compensation to a spouse.

          As a sole proprietor with a spouse who "materially participates" in the business, you can file as a "qualified joint venture." The easiest way to meet the requirement is for the spouse to have participated >= 500 hours in substantially all of their specific activities. So there is a minimum number of hours in this case.

          However, there are significant advantages. You elect to be treated as a qualified joint venture by simply allocating the sole proprietorship's revenue and expenses/deductions. The is done by each spouse filing their own Schedule C and Schedule SE.

          With your spouse as a W-2 employee, their earned income is limited to the number of hours worked * the Fair Market Value (FMV). With a qualified joint venture you can allocate according to each spouses interest in the venture. For example, you can split revenue and expenses/deductions 50:50.

          If your spouse can meet the material participation standards, it is likely the spouse can have greater compensation. If the spouse has not had an employee deferral at other W-2 employment, that means the spouse can contribute 100% of compensation (max $18K) to solo 401k.

          I can think of many things a spouse could do substantially all the work for your small business in addition to bookkeeping. Administrative tasks (scheduling, correspondence, etc...), IT support, sales and marketing (can be time sink with little to nothing to show for it).

          You can look this in the IRA Schedule C Instructions.

          P.S. Also, it avoids having to run payroll and the additional tax filing for FICA, FUTA/SUTA and possibly workman's compensation.

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