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Solo 401k eligibility / spousal issue

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  • Solo 401k eligibility / spousal issue

    Dual physician couple. I am a 1/3 owner of a practice set up as a Professional Corp with subchapter S election that has a 401k with employees. I am the financial trustee of the plan.

    My spouse is a W-2 employee (non-owner) of another unrelated practice and participates in their 401k.

    She also has significant 1099 income for work under her own PLLC. She would like to set up a solo 401k to maximize 401k contributions for her 1099 income in addition to her W-2 401k contributions made through her unrelated employer’s plan.

    She is not an officer, director, employee, or owner of my practice and I am not in her PLLC. Never has been. No plans for me to ever make spousal contributions to her solo 401k. She cannot make them to my practice’s plan.

    We have 2 minor children. My Practice’s operating agreement would not allow her to own stock as it is a professional corp and would require my estate to sell it to my partners and requires my partners to buy it from my estate.

    Is she able to set up a solo 401k or is she limited by attribution to my 401k plan through constructive ownership rules as my spouse or through my children.

  • #2
    I hope this is fine as it is a pretty common situation.
    My passion is protecting clients and others from predatory and ignorant advisors 270-247-6087 for CPA clients (we are Flat Fee for both CPA & Fee-Only Financial Planning)
    Johanna Fox, CPA, CFP is affiliated with Wrenne Financial for financial planning clients


    • #3
      At least under the 2022 tax code. Her PLLC would be in an Affiliated Service Group* with your practice by family attribution if the two of you have any minor children.

      As posteded by Kon Litovsky litovskyassetmanagement, SECURE Act 2.0 removed the minor children attribution**. I do not know whether that provision takes effect at the beginning of 2023, 2024 or later.

      *She would be unable to make any one-participant 401k contributions for any tax years she was/is in an Affiliated Service Group with an employer with any non-owner/spouse eligible employees.

      **This always was an arcane and lame family attribution rule for retirement plan purposes.