A spouse is eligible to participate in your plan if he or she is an employee of the company that adopts the plan.
If you're wondering how your spouse can be an employee for your business and still have a Solo 401k, here’s an explanation:
Eligibility for a Solo 401(k) requires there are no full-time employees of the 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.
Here’s an example. Let’s say Jill has a small vitamin company called “Jill’s Pills”. Jill employs her husband, Ted, to do bookkeeping for the company. Ted can participate in the Solo 401(k) plan created for Jill’s Pills.
Another common occurrence is a husband and wife both owning and operating a business together.
Here are some of the 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 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 in the Company retirement plan (your Solo 401k). Your spouse does not necessarily need to be an owner of the company. Further, there are no changes that need to be made to the plan to allow for this, and there are no additional fees charged for the additional participant.
How can my spouse keep their funds separate in our Solo 401k?
We recommend each participant have their own bank or brokerage account holding 401k funds as well as distinct accounts for each tax treatment.
This might mean you have the following:
Your pretax investment account
Your Roth investment account
Spouse pretax investment account
Spouse Roth investment account
As your own record keeper it's your responsibility to keep track of all the money movement in the plan. That means you'll use our rollover acceptance form to document incoming rollovers, and the contribution form to document contributions of new funds into your plan.
Similarly, you'll use our loan forms to keep track of loans, distribution forms, and investment direction forms to keep track of money going out of the plan.