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Solo 401K for spouse?

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  • Solo 401K for spouse?

    I am a physician (40 y/o) currently maxing out all tax protected space (around 52K through work, HSA, and back door roths x 2) and looking for more.  My spouse (38 y/o) has recently started teaching exercise classes as a sole proprietor and will be making about 2K total this year and probably a similar amount for the next several years.  We also save several thousand each month in a taxable account.  Our current tax bracket is at (39.6% and state tax is 3.2%) and our retirement tax bracket will likely be lower (somewhere between 25% and 33%, assuming that the rates don't change). We still have about 15 to 20 years till retirement.  We have paid off all debts except mortgage (3.15% 15 year). 

    I am debating if it will be worth the hassle of setting my spouse up with a solo 401K for a relatively small amount of money.  

    Here is my understanding:

    This would be better than a SEP IRA because we each do a back door Roth each year

    About 92% of my spouses income can be placed in a Solo401K (about 1800)

    She has already applied and has an EIN

    We are looking at Vanguard to open the solo 401K because we also have our Roth accounts and taxable account there.

    According to vanguard there are no additional fees with the account due to our taxable account balance.  

    In my mind I would rather save the extra ~$800+ each year in taxes as long as the tax forms/records are not too complicated or are too much of a hassle.

    Once I set up the solo 401K through vanguard, I assume that they will supply a plan document and the tax forms needed each year which I plan to send to my accountant.  Is there any additional paperwork/records for maintaining a Solo 401Ks? Is there anything else I am missing? Have others done the same? If my spouse stops working after a few years can the money just stay in the solo 401K until retirement? 

    Thanks for your help!


  • #2

    Yes, you need to choose the solo-k rather than the SEP.

    Solo-k's are quite simple until the balance reaches $250k, at which point you have to file an annual 5500EZ. Still can be a DIY project, though, or your accountant can handle.

    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087


    • #3

      I like to think the way the federal government 10 year projections.  Is it worthwhile for $800 X 10 = $8000?   It would be for me. I added only $1000 to mine this year. Her solo401k can percolate until retirement, or it will be there if she segues to  higher contributions. As jfox described, the paperwork for a solo401k is minimal until the value is $250k.