Maximize Retirement Saving for Self-Employed Spouse

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
beall_canbe
Posts: 2
Joined: Sat Jan 12, 2019 10:56 pm

Maximize Retirement Saving for Self-Employed Spouse

Post by beall_canbe » Sat Jan 12, 2019 11:22 pm

My wife was out of the workforce for several years to take care of the kids. During that time, we maxed out the contribution to two Roth IRA account (for me and her).

Last year, she had an opportunity to do some part-time freelance work and received net income about 6500 dollars.

We opened a Solo 401k for her before the end of last year and plan to send in all her freelance income as employee contribution. One thing I am now not sure about is, given what we plan to do with the Solo 401k, whether we will still be able to contribute the full amount (5.5k), or any amount at all, to her Roth IRA?

livesoft
Posts: 64182
Joined: Thu Mar 01, 2007 8:00 pm

Re: Maximize Retirement Saving for Self-Employed Spouse

Post by livesoft » Sun Jan 13, 2019 6:57 am

I have a solo 401(k). I contribute almost all my self-employed income to my solo 401(k) with the rest going to self-employment taxes (check the rules on how much a low-income self-employed person may contribute to their solo 401(k); they cannot contribute all their self-employed income). I also contribute $6500 ($7000 in 2019) to my Roth IRA. So I suspect your spouse can also contribute to both, BUT ...

There are family income limits, so if the family income is too high, then Roth contributions cannot be made directly. And ...

... Since she has deferred all her self-employment income, her spouse (you!) must have enough earned income to cover the Roth contributions for both of them if both of you make Roth contributions.
Last edited by livesoft on Sun Jan 13, 2019 10:52 am, edited 1 time in total.
Wiki This signature message sponsored by sscritic: Learn to fish.

Silk McCue
Posts: 1753
Joined: Thu Feb 25, 2016 7:11 pm

Re: Maximize Retirement Saving for Self-Employed Spouse

Post by Silk McCue » Sun Jan 13, 2019 7:00 am

She can contribute to the Solo 401k the net dollars after FICA as you describe and you can fully fund her Roth as you have in the past. If she had enough income she could fund both of them herself.

Cheers

Spirit Rider
Posts: 9492
Joined: Fri Mar 02, 2007 2:39 pm

Re: Maximize Retirement Saving for Self-Employed Spouse

Post by Spirit Rider » Sun Jan 13, 2019 9:31 am

A small point, self-employed individuals do not pay FICA. Her maximum one-participant 401k contributions are based on her net self-employment earnings (business profit - 1/2 SE tax).

If she makes the maximum traditional one-participant 401k deferrals. She can still make a Spousal Roth IRA contribution based on your compensation just she has in the past with no income.

If she makes the maximum designated Roth one-participant 401k contributions. She can still make a Roth IRA contribution based on the same self-employed compensation. This is because the Roth 401k contributions do not reduce compensation.

Post Reply