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Financial Products

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Member
Posts: 2
Registered: ‎12-04-2017

Can I use contributions to wife's solo 401K (zero profit from biz) to reduce my W2 wages ?

My situation is as follows :
 
- My wife runs a home business as an interior designer. She is a sole proprietor. Her business has not made any profit this year.  
 
- I work at a start-up, which went IPO recently. Hence I have substantial earned income. 
 
My question is : Can I deduct the solo 401K contributions (for my wife's business), from the income earned at my startup job.
 
    We file a joint tax return. So the incomes of my wife and myself are merged as one, right ? Hence the solo 401 K contributions would be deducted, from the combined income. Am I thinking correctly (please correct me if I am wrong) ?
 
Any guidance would be super helpful ! 
 
Thanks !
Tax Pro
Posts: 5,777
Registered: ‎02-23-2016

Re: Can I use contributions to wife's solo 401K (zero profit from biz) to reduce my W2 wages ?

Hi mpithapurwala,

 

 

 

Welcome to the H&R Block community.

 

You can contribute to the 401(K) of your spouse so long as your joint income is below the contribution phase-out limit for married taxpayers filing jointly.  Yes, you can deduct your contribution to your wife's retirement account on your Form 1040 if you make the contribution with after-tax dollars.

 

If you have any other questions I'll be glad to help.

 

 

Louis,

Senior Tax Advisor (Tampa, FL)

Member
Posts: 2
Registered: ‎12-04-2017

Re: Can I use contributions to wife's solo 401K (zero profit from biz) to reduce my W2 wages ?

That's fantastic ! Thanks Louis. So, to clarify : 

 

I can create a "solo 401K" account for my wife, and contribute 18,000 amount. My wife does not earn any profit from her business. Next I simply consider this as a deduction in the 1040 filling, from our total income ?

 

It does not matter that my wife has not made any income from her solo proprietorship business.

 

Is this correct ? 

 

-Mo

 

 

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Tax Pro
Posts: 5,777
Registered: ‎02-23-2016

Re: Can I use contributions to wife's solo 401K (zero profit from biz) to reduce my W2 wages ?

Hi mpithpurwala,

 

 

Correct.  It will not matter for the personal/elective contribution & the deduction on the 1040 because we're talking about your spouse on a joint return.  Yes, the deduction will reduce your joint taxable income.

 

I did leave out one rule, and that is that you would have to be an employee of your spouse to make contributions.  She can't have any other employees to create a solo 401(K) though.

 

I found some additional information on this topic for you as well:

 

"The self-employed 401(k) is good for sole proprietorships and partnerships and leaves room for a spouse to join. To qualify, you can't have any employees. If you hire your spouse, you can both contribute $53,000 each per year, and there is no annual paperwork until your account reaches $250,000. When you're 50 or older, you can each contribute $6,500 more per year. Contributions up to $18,000 are tax-deferred (deductible on the 1040 if made with after-tax dollars), and then you can contribute up to 25 percent of business profit-sharing. Funds are available for early withdrawals before age 59½ at a 10 percent penalty or through hardship loans."