Hiring spouse as contractor and solo 401k

[jc19int]

I own my single member LLC with net profit of about $10,000. I will put about $9,300 (max allowed) in my solo 410k as an employee contribution in 2024. Spouse also owns a different single member LLC with profit of about $80,000. Spouse will put the full $23,000 + profit sharing of $15,000 ($38,000 total) in own solo 401k. Situation: this year I have been helping spouse doing certain tasks in spouse business, maybe $5,000 worth of work. Can spouse issue me a 1099 NEC this year and can I put that extra $5,000 in my solo 401k. Of course, this would reduce spouse net profit and reduce the profit sharing portion for spouse solo 401k. On a net basis, this would increase our total solo 401k contributions as a couple. We file married jointly.

[pk]

@jc19int  while  you get an answer from my colleagues @dmertz   whom  generally deal with  tax-advantaged  pension plans, I just would like to point out that  because you  are filing jointly and each having a separate Schedule-C, you each ,must also file Schedule-SE and pay 15.3% of your net business income ( less a small amount ) -- SECA  ( equivalent to FICA except for employer sharing ).

Just my 2 cents.

[jc19int]

Yes we already file the schedule Cs and SEs for each LLC and pay our respective estimated taxes each quarter.

[Opus 17]

So first of all,

If your spouse compensates you as a subcontractor, you will pay SECA, but your spouse will deduct the expense from their earnings which reduces their SECA.  That's more or less a wash.

Then secondly, you will need to report this subcontractor job on a second Schedule C attached to your return.  You generally should not combine two different self-employment jobs on one schedule C unless they are basically the same.  (You could combine Uber and DoorDash on one Schedule C as "ride share", but you could not combine Uber and freelance graphic design on the same schedule C.)

Finally, I think you can increase your solo 401k, up to your adjusted compensation from working, even if that work is from more than one schedule C.  As you say, by reducing your spouse's net income, your spouse's participation may be reduced.  Also, remember the total 401k contribution limit from all sources is still $69,000 (or $76,500) so if you have elective deferrals from a main job in addition to side jobs, that overall limit must be respected.   Although I also defer to @dmertz if he is available to give the final word. 

[jc19int]

Thanks for the answer. Agreed on the first and third points.

On second point, I understand substantially different activities require different schedule Cs, but do I actually have to have different LLCs and solo 401k plans as well? The original business is general consulting services for a specific industry (manufaturing), the new income would still be general consulting but for services (SAAS/IT). Overall the work is quite similar (investment analysis, spreadsheets, etc.), just different industries.

Right now I have income "A" going into Schedule C "A" from LLC "A" into 401k "A". Can the extra income "B" going into schedule C "B" (or still "A" since close enough?) still roll up to LLC "A" into solo 401k "A"? Hope this makes sense. Thanks!

[Opus 17]

Because a single member LLC is a "disregarded entity" by default (unless you file special paperwork to be taxed as a corporation), the SMLLC is just another version of "you".  So if "you" have two schedule C businesses (one LLC and one sole prop), that is still just "you".  I don't believe you need separate 401k accounts.

[dmertz]

By participating in your spouse's company, attribution rules for controlled groups might require the two companies to be treated as a single employer for the purpose of a retirement plan.  I think that such would be the case if you were an employee of your spouse's company but perhaps not is you are an independent contractor with respect to your spouse's company.  Whether your are an employee or an independent contractor depends on facts and circumstances related to your responsibilities.