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My wife works as a consultant to a business I operate (a single-member LLC). Can I pay her business (also a single-member LLC) as a vendor? I would treat her payment as a contractor expense, and she would treat the payment as income into her LLC.

If so, can she then contribute this income to a solo 401k? If yes, what contribution limits should she be aware of?

For further background, I contribute to my own solo 401k with my business and an SEP IRA -- in case that makes any difference.

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  • Is your wife providing a real service, one that you would otherwise have to pay for? Is she providing this service to anyone else?
    – DJClayworth
    Commented Apr 1, 2019 at 20:30

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I would say that it almost doesn't matter whether you could, you just shouldn't.

It is the self-dealing prohibitions for qualified plans that have an issue here. Can you probably find a way to characterize the transactions between these disregarded entities as income where some of it can be deferred into your spouse's 401k, probably. Should you and risk the whole plan and other transactions being under scrutiny?

I would say this takes married filing separately further than the law even considers right now. Your spouse's LLC needs other clients for the most flexibility in deferring into a 401k that is intended to be exclusively hers and not part of the marriage unit.

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  • this is very helpful -- not the outcome I wanted but answers my question. thank you!
    – blackfin
    Commented Apr 2, 2019 at 21:08

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