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Shifting income to spouse for tax benefit (both contributors to medical articles)?

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  • Shifting income to spouse for tax benefit (both contributors to medical articles)?

    My wife and I are both medical professionals. I am currently working as full time independent contractor physician while my physician assistant wife is currently stay at home mom until kids are a little older. However, we've both co-authored several medical articles where we are paid $1000 per article. I currently max out solo 401k and am significantly above the social security threshold at my day job. My wife, however, does not make any retirement contributions other than backdoor spousal Roth IRA. My question is if that 1000 per article is better classified as her income vs mine (we both actually contribute legitimate work to the articles and are both listed as authors). I was leaning toward all of the income be in her name. Yes, she has to pay both SS and Medicare taxes where I wouldn't be paying any SS since already maxed out, but then she could put the remainder of the 1099 money all into her own solo 401k for federal tax savings which I won't be able to do since I've already maxed my i401k with my regular IC physician job. We are currently in the 35% MFJ marginal tax bracket.

    Am I interpreting this correctly or is it better to have the money made out to me when analyzing from a tax savings standpoint?

  • #2
    Probably not, but, as an aside, I never approach decisions based solely on taxes.

    Would you pay a 12.4% load on a mutual fund in order to put $$ in a retirement account? That’s what you would be doing (not getting into the 50% deduction for FICA taxes). I would advise you to stick with 20% of (net profit - 1/2 FICA taxes) to your solo-k (with the spouse as beneficiary, of course) and put any extra in a taxable.
    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087


    • #3
      If your wife now has some side income and participates in the 401(k) plan, she could put 100% of the first $19,500 away. At your 35% rate that's a $6,825 income tax deferral but you'd need to pay an additional $2,418 in payroll taxes. So your net deferral is only $4,407 or only 23%.

      A 23% deferral rate is usually where I start talking to my clients about making Roth and post-tax contributions rather than pre-tax. I agree with Johanna. I don't think it's worth it.

      If you wanted to put more away, you could look at the mega backdoor Roth. It's not pre-tax money but you'd be increasing your Roth contributions.