A new client owns an LLC and employs his wife as an office manager–both over age 50. He has been instructed by his CPA only to take draws (which he did not for 2023), presumably to avoid social security taxes for himself. His wife’s salary for 2023 was $41,000. They want to be able to deduct $35-40k/year from their income.

In 2022, he started a 401k plan for the business and the wife could contribute $20k. She recently found out for 2023 that she could not make a lump sum deposit for 2023 and was told she should have been contributing from her weekly paycheck, so she will have no deductible contributions for 2023. They have two additional employees who are younger and have expressed no desire to contribute to any retirement plan, so made no 401k contributions.

They want to roll her 401k into an IRA with me and discontinue the 401k plan. We are opening Trad IRAs for her to max out for 2023 and using her income for the spouse to contribute to his–both maxing out at $7,500. We are looking at setting up Simple IRAs for them to be able to contribute the remaining $24,000 of their goal ($40,000 – $16,000 2024 IRA contributions = $24,000 left to reach goal). The other two employees do not want to participate.

I know they cannot continue the 401k plan and open/contribute to a Simple IRA plan. What are the requirements with the 401k plan to be able to set up the Simple? Neither spouse made 401k contributions for 2023 and will not for 2024, but does the active plan have an impact on opening the Simple IRAs? Also, since the wife did not contribute to the 401k in 2023, is there a way to make 2023 contributions at this point for her Simple IRA?

The goal is to get them the highest deduction for 2023 and have a plan moving forward for 2024 deductions.

Also, since the husband does work, but shows no income for 2023, is the spousal contribution still available for him? What I’ve read says “non-working spouse”, but he is working and just took no income from the business.