Maximizing 401k contributions.

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Maximizing 401k contributions.

Post by zzcooper123 » Sat May 26, 2012 4:54 pm

I would like to maximize my overall 401k contributions. My wife participates in a W-2 job but does not contribute the max to her work 401k which I think is 22,500. She refuses to fund her 401k (currently 10%) any more since it makes her paycheck so small.
I have an LLC with a solo 401k which she is a 5% owner.
Can I contribute the max to the solo401k (50+50k) if I pay her a larger salary from the LLC?
What about FICA? What are the downsides?

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Re: Maximizing 401k contributions.

Post by BNTRS » Sat May 26, 2012 5:38 pm

Yes this can be done. The only real downside would be the FICA due with the increased income. Solo 401ks, like all 401k's, are rather flexible and so you're not really boxing yourself into something by increasing her income and allowing her to make the contribution as a participant to the plan.

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Re: Maximizing 401k contributions.

Post by xerty24 » Sat May 26, 2012 9:16 pm

Money is money, and the size of the paycheck doesn't matter if you have money to spend on what you want (but good luck convincing the wife of that...).

As to the other stuff, I'm not an expert but here's my understanding. You can pay her as an employee of the LLC and then contribute to her Solo 401k. However, you will have to pay FICA on her salary and if you're doing it through an employer contribution to hit the $50k limit, you'll have to pay her $200k or something. Medicare taxes are a deadweight loss, as are (I think) the employer half of FICA (which is slightly lower than half presently, due to a temporary reduction). If she hits the FICA cap on her day job, you can probably get back her excess FICA contributions somehow so those aren't lost, or only to the extent her other salary is below cap (and to the extent extra SS salary credits don't help her benefits in retirement).

I'd guess you're looking at a 6-7% loss to fund the extra contributions, plus overhead, payroll accounting, etc. It's probably worth it if you're looking to do $50k more, since it's not like she can do more than $17k max now at her present job even if you managed to convince her to max out her elective deferrals.
No excuses, no regrets.

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Re: Maximizing 401k contributions.

Post by investor1 » Sat May 26, 2012 10:24 pm

Why not get her to max out her 401(k) through her job, and make up for her change in income by becoming her sugar daddy (limited to about the same amount as the change in her net pay)? That would save you the hassle the previous poster mentioned.

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