ANSWER: To open Solo 401k the self-employed owner cannot have any full-time employees other than his or her spouse or business partner. Based on your information provided below, your spouse appears to qualify for Solo 401k.
Here’s my wife’s information:
1. My wife’s self-employed business is structured as S-Corporation.
2. The total avenue is about $200K~230K annually
3. The annual salary my wife received is $24K.
4. The profits are about $80K~110K profits annually.
QUESTION: To get the maximum tax deduction, how much should she pay herself (and her elder son) in 1099 from the Profit, and how much (The maximum with tax deduction) can she contribute to the Solo 401K account annually?
ANSWER: When the self-employed business is an S-Corporation, contributions to Solo 401k are based on W-2 wages. The maximum Solo 401k contribution per participant is $50,000 for 2012 tax year plus additional catch-up amount of $5,500 if participant is age 50 or older in 2012.
The maximum W-2 income that may be used to calculate your 2012 tax year contribution is $250,000. Please use our online Solo 401k contribution calculator to calculate your 2012 tax year Solo 401k contribution.
Lastly, unless your wife’s son is a partner in the S-Corporation, he will not qualify to participate in Solo 401k since, as explained above, Solo 401k is for maximum of two business partners.