Spousal Solo 401k

If you are a solopreneur who fell in love with another solopreneur then congrats!  You are well on your way to a spousal Solo 401k.  You can both set up your own Solo 401k and build tax-advantaged wealth faster than your friends who are employees.  But what if you are a solopreneur who fell in love with a typical employee? Well, congrats again!  Except now you’ve got a little more legwork to do to maximize your Solo 401k potential.


If you run a successful solopreneur business and max out your Solo 401k, but your spouse isn’t already a part of the business then get them involved.  Not necessarily on day-to-day decision making, but certainly at least on paper.  Make your spouse a participant in the business and shift income out of your name and into your spouse’s.  This makes your spouse eligible to participate in a Solo 401k.  If you have a corporate entity you can make your spouse a wage-earning employee (and no, it does not render your Solo 401k ineligible; spouses are exempt from being considered employees in this context) or if you are a sole proprietor then you have your spouse start their own sole proprietorship.


Real Life Example


My client Joe is an insurance agent with no employees and a Solo 401k that he maxes out every year.  His wife Jane does not work.  Joe runs his business as a sole proprietorship.  Here is how he adds his wife to his business and reduces their taxes:

  • He tasks Jane to do marketing work for him and he pays her just enough that she can defer 100% of her earnings into her own Solo 401k.
  • He writes off the payments to Jane against his income and Jane writes off the payments again once she contributes to her Solo 401k.
  • Jane does have to pay some additional self-employment tax, but the immediate tax savings and tax-deferred investment earnings are well worth the cost.



Before you proceed with a spousal Solo 401k you absolutely must consult with your tax adviser.  There are situations in which this strategy can produce worse tax outcomes, so it is crucial to analyze the effects of shifting income to your spouse before committing to this strategy.  Sherman Asset Management does not provide tax or legal advice.  The information contained herein is provided for informational purposes only.  Do not rely solely upon this information to make tax decisions.