Husband Wife Separate Businesses

[K-t-F]

Husband is a self employed consultant... no EEs

Wife owns travel agency. 4-6 EEs

Wife is closing business before the end of the year... but may drag on into 2007.

Can husband open a Solo 401K and defer himself. Wife will work for Hub but will not defer until 2007.

Any problems here?

Thanks!

[austin3515]

B/C wife has involvement in husband's business, spousal excpetion is void in 2007, and you got one controlled group in 2007. So if she has employees in 2007, they need to be covered by the Plan, or the Plan won't pass coverage. Although your ADP limit will be zero based on current year testing (assuming the soon-to-be-former employees won't contriubte), you could use prior year testing and the husband AND the wife could both contriubte 5% or more (if they're over 50).

By the way, if they have any minor children, you got one controlled group in 2006 too! That's because the kid owns 100% of both businesses. A wholly unintended, yet undisputed interpretation. Is it enforced? That's a different question...

[K-t-F]

Agency EEs need to be covered even if they are terminated early in the year? Wife will have no involvement until Agency is gone.

Thanks!

[austin3515]

Yes. The Tern with <500 hours rule doesn't apply to 401k plans.

This assumes that the employees have met the statutory eligibility requirements (i.e., 1 year w/ 1,000 hours, etc.)--if they have not they would be otherwise excludables.

[Guest mjb]

What is involvement of W in H's business under the 414 regs that voids the spousal exception if spouse is employee of H (works for H)?

[Guest Pensions in Paradise]

Wife as employee voids spousal exception under IRC 1563(e)(5)

[austin3515]

"Wife will have no involvement until Agency is gone"

To address this point specifically, coverage is determined at year-end, considering the entire year. But this is an interesting "twist." I'm curious if others agree with my conclusion?

[K-t-F]

That was my understanding... as long as the 2 companies are totall separate and neither husband or wife has anything to do with the other... no income for the whole year.

These 2 are fine with not being a part of each other... want to do it right.. crossing all the "T"s and dotting all the "i"s

As for otherwise excludables... I am not sure what the hire dates of the agency EEs are. I am guessing that they would have the 1000 hrs and 1 year.

Thanks for your comments.

[SteveH]

Just make it safe harbor for 2007 with the matching formula. If the employees know that they are getting fired in weeks they won't participate anyway.