Spouse use of Solo 401K

[lesjef]

As a Sole Proprietor with a Solo 401K plan with two 401K accounts (Me and my Spouse).  I paid my spouse for contributing to the business as an employee with a W2 for $12,000 as Box 1 income.  I also designated $11,082 as an elective 401K contribution (Code D).  I want to make sure that amount ($11,082), which is $12,000 less the SE taxes that I withheld (and paid already paid to the IRS), is the amount of a non-taxable contribution to the 401K.  Where does this $11,082 come off our joint income in Turbo tax? I took the $12,000 down as a business expense - but it gets added back in from her W2.

[ThomasM125]

The elective deferral will show up on line 15 of schedule 1 of your form 1040. You will see an option to enter it in TurboTax when you are on your business page, where it says Let's gather your business info. The subsection is Less Common Business Situations and then look for Self-employed Retirement.

You do need to factor in your self-employment tax to determine how much you can contribute to your solo 401-K plan. Turbo tax has a routine that will determine what your maximum contribution can be, and it will put your contribution on the proper line on schedule 1 once you enter how much you will contribute.

You cannot enter the contribution off of your W-2 entry as you describe.

[lesjef]

For my spouse to contribute to my solo 401K plan (I am a sole Proprietorship) - should the spouse be a W2 employee or a 1099 worker? If I pay my spouse as a 1099, then are they then a 2nd sole proprietor?

[ThomasM125 · Accepted solution]

You can have a Solo 401-K with your spouse and you would pay the spouse a wage reported on a W-2 form. You would not pay the spouse as a sub contractor reported on a form 1099, as that would require a separate schedule C and dual sole-proprietorships.