Can my spouse participate in my Solo 401k plan?
A spouse is eligible to participate in your plan if he or she is an employee of the company that adopts the plan.
Eligibility for a Solo 401(k) requires that there are no full-time employees in the adopting company other than owners, partners and their spouses. Independent contractors and part-time employees (who work under 1000 hours per year) are not considered full-time employees.
If your spouse is an employee of the company that adopts your Solo 401(k) plan, he or she is considered an “owner-employee” since the two of you are married. Another common occurrence is a husband and wife both owning and operating a business together. In both cases, both spouses can participate in the same Solo 401(k) plan.
Let’s say Mary has a marketing company called “MMM Marketing”. Mary employs her husband, John, to do bookkeeping for the company. John can participate in the Solo 401(k) plan created for MMM Marketing.
Benefits of having a spouse participate in your plan
- An eligible participant can make contributions to the plan from income received from the adopting employer.
- Since your spouse will have his or her own set of contribution limits, spousal participation effectively doubles the total limits on contributions to the plan.
- A spousal participant can also transfer eligible existing retirement funds into the plan.
- Spousal participation also serves to eliminate the costs of having to create and maintain multiple plans.
As long as your spouse is an employee of the company that adopts the plan, he or she can participate. Your spouse does not necessarily need to be an owner of the company.
Establishing separate accounts
If your spouse is participating in the plan, we recommend setting up a separate bank account in the name of the trust for the additional participant’s contributions and/or rollovers. This is best for ease of accounting. Each account can be labelled with "FBO" (for benefit of) for each participant. The same would apply when opening other types of accounts in the name of the 401k trust, including brokerage accounts.