I am a sole proprietor. My wife does the accounting. Can I create a 401K for her w/o making her an employee (which would require deducting for SS and issuing a W-2)?

[dmertz]

The answer is essentially No.

You can make her a partner in the business rather than an employee and the partnership would be a disregarded entity for each of you, resulting in each of you reporting your share on a separate Schedule C and no W-2 being issued, but she would still be subject to Social Security and Medicare tax (self-employment tax) on her net profit from self-employment that would support elective deferrals and employer contributions.  An "individual" 401(k) plan can cover both spouses in such an arrangement, but the employer contribution must be made for both under the same matching contribution or profit sharing formula.

Making her either an employee would reduce your net profit on which you pay self-employment tax and would potentially reduce the amount that you would be eligible to contribute.

Of course she can't make any elective deferral for 2018 unless by the end of 2018 she had made the election to make an elective deferral.  If the company had no 401(k) plan established before the end of 2018, neither of you can contribute to a 401(k) under this business.