Saving for retirement may not be the most exciting thing to think about when setting up your new business, but it is essential for your comfort and security in the future. One of the most advantageous savings accounts is a Solo(k), which is designed for self-employed individuals.
Only business owners who work on their own can contribute to a Solo(k) – but there is a major exception to the rule. Many business owners find themselves asking, “Can my spouse contribute to my solo 401(k)?”
The good news is that a solo 401(k) spouse contribution is indeed possible if they are working in the business with you. This can help you save twice as much money for your golden years in the same timeframe. Here’s everything you need to know about spousal contributions.
Benefits of 401(k) Spousal Contributions
Entrepreneurs and solo business owners must make some difficult decisions about the structure of their company. To qualify for a Solo 401(k), you are not allowed to have any other employees, but there is one major exception: your spouse. If you need a little help from time to time (or even a bit more regularly), your spouse can work for your business as much as they want.
The benefit is that business owners get the assistance of an extra person without the headache of bringing on an entirely new employee. Your spouse can work full-time if they want to, and you will both qualify to contribute to your Solo(k).
But that is not the only benefit of a spousal contribution to your business. It also allows for larger contributions to your retirement savings account because two people are contributing. If you want to save as large of a nest egg as possible for retirement, this is a savvy way to do it.
For 2024, a single person can contribute up to $69,000 per year ($76,500 for those aged 50 or over). With a spouse in the picture, you can each contribute up to that limit.
Solo 401(k) Spouse Rules
The ability for spouses to contribute to a Solo(k) is a win-win situation for entrepreneurs and business owners. They get a little help in the day-to-day operations of the business and the couple gets a larger nest egg for retirement. It can be extremely beneficial, but it is not without a few spouse rules.
The first rule is that your spouse must have earned income from the business. In other words, you do have to actually pay them if you want them to have the opportunity to contribute to your retirement savings account. Earned income is not just nice to have; it is essential for those who want to contribute to retirement without opening a new plan.
Second, you need to consider your business structure and how your spouse fits into the overall picture. You could be a sole proprietor, running the ship on your own while your spouse acts as a W-2 employee. However, they could also be a partner with each person having a stake in the success of the business. LLCs and corporations are still other options where your spouse has more options for W-2 wages
Keep in mind that your spouse can only contribute to your Solo 401(k) as long as they are actively making money via the business. When they stop making earned income in the operations of the business, they can keep their retirement savings account but cannot contribute any new funds.
Solo 401(k) Spouse Contribution Limits
The real place where Solo(k) retirement accounts shine is in their high contribution limits. How much can a spouse contribute to a Solo 401(k)?
If your business is thriving and you want to turn your eye to the future, individuals under the age of 50 can contribute up to $69,000 annually in 2024. This applies to both you and your spouse, giving you a grand total of $138,000 to invest.
If you are age 50 or over, you can invest even more into your Solo 401(k). The individual limit is $76,500 in this scenario which means you and your spouse could contribute a maximum of up to $153,000 per year. In other words, the Solo(k) spouse rules around contributions are very flexible and enable massive growth in your retirement account.
The contribution limits of a Solo 401(k) are the reason that many business owners only hire their spouse to work with or for them. A Roth or traditional IRA has a lower contribution limit and can seriously hamper your ability to save for nearing retirement.
Are You Ready for a Solo 401(k)?
Retire4one is here to help you get set up for retirement, no matter what your arrangement or the structure of your business. We aim to help self-employed individuals and small business owners set up shop with retirement savings accounts. It takes just three to five minutes to start based on how much time you want to spend researching fund options.
Our partnership with Voya allows us to offer you all of the bells and whistles of a larger employer that offers a 401(k) account but with more flexibility for the self-employed. Reach out to us today to see if our services are the right fit for you, or jump right in and get started!