My wife being added to my single-member LLC

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investing1012
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My wife being added to my single-member LLC

Post by investing1012 » Sun Aug 21, 2016 12:30 pm

My wife is an employed person and I own my own LLC. My wife does help me operate my business. I would like to add her as a member of my LLC. We are in a community property state.

From my readings you can add a spouse to your LLC in community property states and still declare your LLC as a single member LLC. My question is can both my wife and I contribute the $53000 (totaling $106000) to the individual 401k of my company?

Also since she will be a member of the LLC and not an employee would she need to have an income for the work that she does for my company? She currently earns greater than 200K from her employed position and her employer provides her with an employer 401k.

Thanks for your help in advance!

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White Coat Investor
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Re: My wife being added to my single-member LLC

Post by White Coat Investor » Sun Aug 21, 2016 3:53 pm

I did this and wrote a big post about it once. It is a very good idea for you as you'll get an extra 401(k) ($53K) without even having to pay any extra in SS tax like I did. This all assumes there is enough income in this LLC to be able to max out an individual 401(k) for each of you. Remember, if she used her employee contribution elsewhere, the solo 401(k) contributions have to be all employer, so she'll need an income of $275K+ from the LLC to max it out.
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investing1012
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Re: My wife being added to my single-member LLC

Post by investing1012 » Sun Aug 21, 2016 4:07 pm

Thank you and I have read the informative post you have written previously. I had several questions:

1. Why does the spouse need an income of 275k+ from the LLC to max it out?
2. Does to spouse need to have a salary from the LLC since she is a member?
3. From what I remember reading you had to declare your LLC as a partnership as it no longer qualified for a single member LLC. Since I am in a "community property" state we don't necessarily have to form a partnership for my wife to be added to my LLC. Does this affect our ability to contribute to a second 401k?

gclancer
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Re: My wife being added to my single-member LLC

Post by gclancer » Sun Aug 21, 2016 4:13 pm

White Coat Investor wrote:This all assumes there is enough income in this LLC to be able to max out an individual 401(k) for each of you. Remember, if she used her employee contribution elsewhere, the solo 401(k) contributions have to be all employer, so she'll need an income of $275K+ from the LLC to max it out.
Since OP doesn't provide a lot of details but does have a high income, this set up may make sense to look into (depending on how much the LLC earns): https://thefinancebuff.com/after-tax-co ... -401k.html

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investing1012
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Re: My wife being added to my single-member LLC

Post by investing1012 » Sun Aug 21, 2016 4:17 pm

gclancer wrote:
White Coat Investor wrote:This all assumes there is enough income in this LLC to be able to max out an individual 401(k) for each of you. Remember, if she used her employee contribution elsewhere, the solo 401(k) contributions have to be all employer, so she'll need an income of $275K+ from the LLC to max it out.
Since OP doesn't provide a lot of details but does have a high income, this set up may make sense to look into (depending on how much the LLC earns): https://thefinancebuff.com/after-tax-co ... -401k.html
The LLC earns > 250k/ year

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dm200
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Re: My wife being added to my single-member LLC

Post by dm200 » Sun Aug 21, 2016 4:33 pm

The question I would ask (I do not know the answer) is whether adding her to the LLC either directly or indirectly will (or might) lower asset protection for joint marital assets, such as home owned jointly (as a married couple).

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Re: My wife being added to my single-member LLC

Post by White Coat Investor » Sun Aug 21, 2016 6:29 pm

investing1012 wrote:Thank you and I have read the informative post you have written previously. I had several questions:

1. Why does the spouse need an income of 275k+ from the LLC to max it out?
2. Does to spouse need to have a salary from the LLC since she is a member?
3. From what I remember reading you had to declare your LLC as a partnership as it no longer qualified for a single member LLC. Since I am in a "community property" state we don't necessarily have to form a partnership for my wife to be added to my LLC. Does this affect our ability to contribute to a second 401k?
1. Again, I've written a post about this, but basically it's employer contribution only due to her other 401k. So $53K/~20%= $265K. Add the fudge factor for the ~20% issue and that's 275K. Bottom line, if the LLC only makes $250K, you're not both going to be able to put $53K into a solo 401(k). In fact, it might not increase how much you can put in at all.
2. Not a salary, just distributed profits. I assume you're being taxed as a partnership and not an S corp.
3. No. There is no issue for you to use a second 401(k), it's just a matter of how much you can get in there. In fact, if your main goal for doing this is more 401(k) space, you'd better do the calculations a priori. I guess if you pay yourself $185K or so, and her $65K or so you could potentially get $13K or so into the solo 401(k) for her. Whether that's worth the hassle for you is up to you. But no way are you getting anywhere close to $53K for her. You don't have enough business income right now.
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Re: My wife being added to my single-member LLC

Post by White Coat Investor » Sun Aug 21, 2016 6:31 pm

As far as asset protection, I think it would increase it. Multimember LLCs generally have better protection than single member LLCs, and the additional tax protected space would likely increase asset protection. But asset protection law is state specific so check on your state's laws and if you're really concerned, see an asset protection attorney in your state.
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dm200
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Re: My wife being added to my single-member LLC

Post by dm200 » Sun Aug 21, 2016 6:37 pm

White Coat Investor wrote:As far as asset protection, I think it would increase it. Multimember LLCs generally have better protection than single member LLCs, and the additional tax protected space would likely increase asset protection. But asset protection law is state specific so check on your state's laws and if you're really concerned, see an asset protection attorney in your state.
Let me claify my questions - It is very common that a personal guarantee is required for contracts, loans, etc. of an LLC. So, the question is whether all owners of an LLC will be required to do a "personal guarantee" and the personal guarantee removes the protection of the LLC. I speak from a VERY painful experience.

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Re: My wife being added to my single-member LLC

Post by Gemini » Sun Aug 21, 2016 6:37 pm

To clarify: if a husband adds wife as partner to LLC, which is a disregarded entity in this case i.e. not S corp, they can both profit share 53K EACH into their respective solo 401K if the income is ~265k?

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Re: My wife being added to my single-member LLC

Post by Gemini » Tue Aug 23, 2016 1:00 pm

Just updating: I did some digging and what I stated above appears to be incorrect. Profit sharing is split between owners, so you would need twice the income to max both solo 401k profit sharing buckets.

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Re: My wife being added to my single-member LLC

Post by Lieutenant.Columbo » Sun Apr 01, 2018 11:35 am

White Coat Investor wrote:
Sun Aug 21, 2016 3:53 pm
I did this and wrote a big post about it once. It is a very good idea for you as you'll get an extra 401(k) ($53K) without even having to pay any extra in SS tax like I did. This all assumes there is enough income in this LLC to be able to max out an individual 401(k) for each of you. Remember, if she used her employee contribution elsewhere, the solo 401(k) contributions have to be all employer, so she'll need an income of $275K+ from the LLC to max it out.
resuscitating this Topic to ask WCI:
1. did you add your spouse as owner or employee or both? is she a physician too?
2, if as employee physician, is she in the same specialty as yourself? is that even a matter in whether your LLC can hire her? I mean, can a small (your) LLC hire an ER doctor and a non-ER doctor?
Thank you.
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Re: My wife being added to my single-member LLC

Post by LadyGeek » Sun Apr 01, 2018 11:45 am

This thread is now in the Personal Finance (Not Investing) forum (LLC).
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Re: My wife being added to my single-member LLC

Post by White Coat Investor » Wed Apr 04, 2018 9:14 am

Lieutenant.Columbo wrote:
Sun Apr 01, 2018 11:35 am
White Coat Investor wrote:
Sun Aug 21, 2016 3:53 pm
I did this and wrote a big post about it once. It is a very good idea for you as you'll get an extra 401(k) ($53K) without even having to pay any extra in SS tax like I did. This all assumes there is enough income in this LLC to be able to max out an individual 401(k) for each of you. Remember, if she used her employee contribution elsewhere, the solo 401(k) contributions have to be all employer, so she'll need an income of $275K+ from the LLC to max it out.
resuscitating this Topic to ask WCI:
1. did you add your spouse as owner or employee or both? is she a physician too?
2, if as employee physician, is she in the same specialty as yourself? is that even a matter in whether your LLC can hire her? I mean, can a small (your) LLC hire an ER doctor and a non-ER doctor?
Thank you.
1. Owner
2. Not a doc. And my LLC doesn't do medicine, it does financial education. But yes, an LLC could hire a doc and a non-doc. Mine did.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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Re: My wife being added to my single-member LLC

Post by Lieutenant.Columbo » Wed Apr 04, 2018 10:40 am

White Coat Investor wrote:
Wed Apr 04, 2018 9:14 am
Lieutenant.Columbo wrote:
Sun Apr 01, 2018 11:35 am
White Coat Investor wrote:
Sun Aug 21, 2016 3:53 pm
I did this and wrote a big post about it once. It is a very good idea for you as you'll get an extra 401(k) ($53K) without even having to pay any extra in SS tax like I did. This all assumes there is enough income in this LLC to be able to max out an individual 401(k) for each of you. Remember, if she used her employee contribution elsewhere, the solo 401(k) contributions have to be all employer, so she'll need an income of $275K+ from the LLC to max it out.
resuscitating this Topic to ask WCI:
1. did you add your spouse as owner or employee or both? is she a physician too?
2, if as employee physician, is she in the same specialty as yourself? is that even a matter in whether your LLC can hire her? I mean, can a small (your) LLC hire an ER doctor and a non-ER doctor?
Thank you.
1. Owner
2. Not a doc. And my LLC doesn't do medicine, it does financial education. But yes, an LLC could hire a doc and a non-doc. Mine did.
Thank you for this reply.
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!

Ztx
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Re: My wife being added to my single-member LLC

Post by Ztx » Wed Apr 04, 2018 11:22 pm

I have a similar question: my wife is in medical field and we created a single-member PLLC in Texas (she's the only member). I have a day job but do quite a bit of work for the PLLC: (IT, financials, marketing etc). I would like to join her on trips to various conferences and the PLLC to pay for it. What is the best way to structure this:

- nothing needs to be done since I'm a spouse of the owner already and own a half anyway?
- should I become an W2 employee?
- become a member of the PLLC? It's my understanding only a licensed professional can be a member of a PLLC in Texas.

Thank you!

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Re: My wife being added to my single-member LLC

Post by Ztx » Fri Apr 06, 2018 6:58 pm

just bumping this thread up in case somebody can provide an advice. thanks!

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