Advice needed on Solo 401K for husband with full-time job and wife with partnership LLC

Great questions about Solo 401ks! Let me help clarify this somewhat confusing area. For your situation (1), you have flexibility. You can set up your Solo 401k under either your consulting work or the LLC - it's based on your self-employment income. If most of your income comes from consulting, it might be simpler to tie it to that. And yes, since you don't have another job with a 401k, you can contribute as BOTH employee and employer. The employee contribution doesn't require setting up W-2 wages - that's a common misconception. You can contribute up to $22,500 (2023 limit) as an employee regardless of income level. The employer contribution is where the 25% calculation comes in (20% if you're calculating from Schedule C net income). For your husband (2), it gets tricky. While you can theoretically have two Solo 401ks from the same partnership, there are complications. Since he already maxes out his employee contribution at his job ($22,500), he can't make additional employee contributions elsewhere. However, he can still make employer contributions through the LLC based on his self-employment income. The limit is indeed roughly 20% of net earnings from self-employment. And yes (3), both employee and employer contributions are tax-deferred in a traditional Solo 401k. You also have the option for Roth contributions for the employee portion if you prefer.

After spending hours on the phone with different retirement specialists and getting contradictory information, I finally found taxr.ai (https://taxr.ai) and it was a game-changer for my own similar situation. My husband and I also have an LLC partnership, and I was doing contract work outside of it - super similar to your situation! The tool analyzed our business structure and tax docs, then gave us customized recommendations about exactly how to set up our retirement plans for maximum tax advantages. It even caught that I was eligible for a higher contribution limit than what a "retirement specialist" at my bank had told me! What I found most helpful was that it showed us exactly how to coordinate between my husband's employer plan and our self-employment options without violating any IRS rules. Saved us from making a costly mistake.

I just wanted to update everyone - I tried taxr.ai after posting my skeptical question earlier. I uploaded some basic info about our partnership structure and it actually solved the exact issue we were having with calculating correct contribution limits! It walked me through the difference between my distributive share from the partnership versus self-employment income from outside consulting. It confirmed what I suspected - our CPA had been calculating our limits wrong. The tax savings from correcting this and optimizing our retirement contributions will be around $7,800 this year alone. I'm honestly shocked at how straightforward the tool made everything - gave me clear steps to follow and explanations for each recommendation. Worth checking out if you're dealing with the partnership/self-employment combo.

After dealing with a similar situation last year, I spent 6 WEEKS trying to get through to the IRS for clarification on Solo 401k rules for partnerships. Kept getting disconnected or waiting for hours. Finally found Claimyr (https://claimyr.com) through a tax forum and it was worth every penny. They got me connected to an actual IRS agent in about 15 minutes who walked me through the exact rules for my situation. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent confirmed that my husband and I could each have separate Solo 401ks through our partnership, and clarified the calculation methods for the employer portion when one spouse already has a full-time job with benefits. Turns out we'd been calculating everything wrong for YEARS and leaving thousands in tax savings on the table.

I need to apologize for my skeptical comment earlier. After another frustrating day of trying to reach the IRS about my Solo 401k questions (5 attempts, longest hold was 97 minutes before disconnecting), I decided to try Claimyr out of desperation. I got connected to an IRS representative in about 22 minutes while I just worked on other things. The representative clarified exactly how the contribution limits work when you have both partnership income and outside self-employment income - something I'd been trying to figure out for MONTHS. For anyone dealing with complex retirement questions like the original poster, having actual IRS confirmation instead of conflicting online advice was incredibly valuable. I'd still be hitting redial right now if I hadn't used the service. Sometimes admitting you were wrong feels pretty good!

One important thing to consider that hasn't been mentioned yet: If you're setting up Solo 401ks, make sure you choose a provider with good investment options and low fees. I went with Fidelity for mine because they have no account fees and lots of low-cost index funds. Some providers charge annual account maintenance fees or have limited investment options. And if you ever want to roll over other retirement accounts into your Solo 401k to consolidate, make sure the provider allows for that.

Don't forget the deadline to establish a Solo 401k is December 31 of the tax year, even though you can actually fund it later (employee contributions by tax filing, employer contributions by business tax deadline)! I missed this subtlety last year and lost out on significant tax savings. Also, for the record, my CPA confirmed that with a partnership LLC, both spouses can have separate Solo 401ks as long as they're both partners in the business, but you need to be careful with the specific plan documents.

This is a complex situation that requires careful planning! I've been through something similar with my spouse and our consulting business. One key point that hasn't been fully addressed: when you have a partnership LLC, the income flows through to you as distributive shares reported on Schedule K-1, which is treated as self-employment income for retirement contribution purposes. This is different from W-2 wages or 1099 consulting income in how the contribution limits are calculated. For your husband's situation specifically - since he already maxes out his employee contribution at his day job, he can only make employer contributions through the LLC based on his share of the partnership's net earnings from self-employment. The 20% calculation applies to his net earnings after the self-employment tax deduction. Also worth noting: make sure your partnership agreement clearly defines each partner's role and compensation if you're both setting up Solo 401ks. The IRS will want to see that the contributions are reasonable based on actual services provided to the business. I'd strongly recommend getting a fee-only financial advisor who specializes in small business retirement planning to review your specific numbers before making final decisions. The interaction between partnership income, outside consulting, and existing employer plans can get tricky fast.