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Don't take this the wrong way, but those of us who have had to deal with the strange way that the Internal Revenue Code goes about its business are chuckling right about now. While it is not illogical for you to have reached the conclusion above, it works the other way around. That is, self-employed individuals (such as sole props and partners in a partnership) are considered to be "employees" even though they don't receive a W-2. Once they are an "employee" then, if they satisfy additional criteria, they can be considered "key". While a lowly partner in a 200-partner law firm might not be considered a "key" employee (because his ownership percentage wouldn't be large enough), you can rest assured that you and your wife are both considered "key". You have tunnel vision. 420 isn't the normal route for funding 401(h) accounts. Instead, the more normal route is in conjunction with annual contributions through a qualified plan. 420 just piggy backs into 401(h) through qualified transfers. Unfortunately for what you are attempting to do, the limitations of 420 make it clear that the largest qualified transfer is ZERO in your case. But the Internal Revenue Code and ongoing advice from the IRS is beyond complicated, so while I'm not willing, at this point in time, to say anything that implies what you want to do is doable, I'm also mindful that it is possible you might find somebody who can point to some sort of exception. If you do, and you can find an ERISA lawyer to bless the concept, more power to you. I don't think your wife's salary matters because I don't think you can do it. So you don't want advice from me, one way or the other as to what your wife's salary should be. I am aware of at least one firm that purports to understand and advocate for 401(h) accounts. [Surely you can find them with a little google searching.] I am not aware of whether their advocacy extends to seeding 401(h) accounts with qualified transfers under 420. What I am aware of is that the practitioner I'm thinking of "advertises" that it is not necessary to establish separate accounts under 401(h) for key employees [as required by 401(h)(6)]. They make similarly outlandish claims regarding the disposition of 401(h) funds after the death of the principals. [Ask them what happens to the moneys if you are successful at establishing a 401(h) account with $1MM in it and both you and your wife get in a fatal car accident the next day.] But some clients gravitate to those advisors who claim to have a singularly successful formula, without consideration of the horrific tax results that await them if and when the IRS gets involved. So a few words of caution: (1) make sure whatever is presented to you satisfies the scrutiny of an independent ERISA lawyer; and (2) please be aware that the Internal Revenue Code provides the ultimate in what might be described as a level playing field - hence, very few of us can claim to do things that others in the field just can't do - so make sure there are at least TWO providers who can offer you whatever shiny object looks good to you!