You can only make contributions to a solo 401K if you work for the business. If one spouse "earned all the money", then the other spouse wasn't working.
A solo 401(k), sometimes known as an individual 401(k), is a type of retirement account designed for self-employed people with no full-time employees. There is an exception if your spouse works for your business. In that case, both of you may contribute to a solo 401(k).
There are approaches you can use to meet the "work for the business" requirement:
Here are 3 ways you can structure your sole proprietorship if your spouse works with you:
- One spouse is the sole business owner of the Solo 401k; the other spouse will receive a W-2 as an employee in the first spouse’s business. This is often the simplest solution. This may be best if the second spouse has only minimal duties and activities in the business.
- The couple acts and files as a partnership, where each partner will receive a K-1(Form 1065). The partnership will not pay income taxes itself, passing the profits and losses on to each partner. If both spouses contribute materially to the business, a partnership will be the default structure in the eyes of the IRS.
- The couple files as a Qualified Joint Venture. This solution is possible when both spouses work and contribute materially to the business and file a joint tax return. This allows you couple to avoid forming a partnership. Also, both spouses will receive credit for social security and Medicare coverage purposes. Each spouse will separately report income gains and losses, as well as business deductions and credits on Form 1040 Schedule C.
