Individual 401(k) Question
Hello, I have a client with an existing Individual 401(k) with 3 owners (unrelated). I believe that is permitted as all owners. They now want to add their wives to the plan and begin deferring for them. Since they are related, is this permitted?
Any help would be greatly appreciated. Thank you.
Permalink Submitted by William Tuttle on Thu, 2021-12-09 21:56
A one participant (misnomer) 401k cannot have eligible non-owner/spouse employees. Owners and spouses are ok. However, the spouses must be paid a fair market value wage only for work hours actually performed on business necessary tasks. You can’t just put them on the payroll and there needs to be good records for justification.