adding wife of owner

[Pixie]

Wife of owner has worked but has not been on payroll.  The plan requires 1000+ hours age 21, one year of entry.  Is she eligible due to being the wife of owner or must she have been on payroll with the required service to actually enter the plan.

[Lou S.]

She is subject to the same eligibility conditions as all other employees.

Now if you are asking if her unpaid service counts towards the 1000 requirement, that's not an argument I'd like to have with the IRS on audit.

[Belgarath]

Well, you might want to consider facts and circumstances. It isn't unknown, for example, for an owner to take zero compensation for 1 or more years. Same could hold true for the spouse - if it can be reasonably demonstrated that she actually worked 1,000 hours (might be tough, as noted above)  then she should be eligible to enter, or might have already entered, even if not formally acknowledged. For what purpose is this being considered? Is she now being compensated? If not, and she still has zero compensation, then it likely won't matter anyway? It could matter for vesting if she is is entering/has entered and now has compensation.

[Peter Gulia]

“Is she [potentially] eligible due to being the wife of [an] owner . . . ?”

Consider whether the wife and the other spouse now reside, or ever resided, in (or have another jurisdictional tie to) a State that provides or permits a community-property regime.

Even if all contacts are with separate-property States, consider whether a contribution to the business—which might be a little startup money, or either spouse’s services—was made under a law that recognizes a tenancy-by-the-entirety. States’ laws vary in whether that tenancy (if recognized at all) can apply to personal, rather than real, property, and about whether and how a tenancy-by-the-entirety might be created. For example, a State’s law might recognize spouses’ ownership of investment and business interests can be a tenancy-by-the-entirety. And a State’s law might treat a creation or acquisition during a marriage as presumed a tenancy-by-the-entirety, unless a related document specifies otherwise.

For either of these, a client might want a lawyer’s advice about exactly what property rights the wife has or lacks, and whether the wife’s interest could make her a self-employed individual.

Also, one would consider whether tax law calls for determining a status or fact without regard to community-property law. (I have not looked at whether § 401(a), § 415, § 1402, and other Internal Revenue Code provisions include or omit an expression about that point.)

If the wife might be an owner and a self-employed individual, consider that allocating self-employment income between the other spouse and the wife might lower a nonelective or matching contribution allocable to the other spouse’s account.

This is not advice to anyone.