Roth 401K contribution from Spouse?

[RAP]

I would like to know, as I have NOT been able to find out elsewhere, if when the Roth 401K plans are made available, will they allow contributions to come from the spouse?

Here's my scenario:

I have a a high income(>160K), which has a retirement account and it is maxed out(42K).

My wife has a small income (4K-9K), and currently she is working for a public entity, so she is contributing 90% of that money pre-tax into a 457 plan.

My question is if my wife's employer starts a Roth 401K plan, will she able to, by the tax code, contribute the difference up to 15K into a Roth 401K using funds that are essentially coming from me, even if she does not have the full 15K of income? I ask this because Roth IRA's allow spousal contributions, but we are not eligible because of the pesky income limitations.

Any info would be appreciated.

Thank you.

[tsj513]

No, I don't think that would work. Participants (i.e. your wife) not only have the $15k limit (402g limit) but the 415 limit. The 415 limit is based on all contributions, except rollovers or catch-up contributions. The 415 limit for 2006 is $44,000 or 100% of compensation. Any employee, including your wife, cannot put more than 100% of their compensation in contributions into a 401k, regardless of how much they make.

[RAP]

Thank you for your answer.

That brings me to my next question.

If my wife's earnings are, for the sake of the argument, $8K, she would probably be able to sock away approximately $7K into her 457 plan(after FICA and Medicare taxes). Now if her employer were to offer a Roth 401k, would she be able to, instead of the 457, open a Roth 401K, and if so, what would be her maximum amount she could contribute:

1. $7K and then pay the federal and state taxes on that income separately(using funds from my income)

or

2. would she need to have income tax withheld and then contribute only the remaining portion, say $5K

or

3. would she be eligible to contribute the full $8K and pay for all of the other taxes(state, federal, FICA, and Medicare) with outside funds.

Thanks in advance.

RAP

[tsj513]

That's a good question and not having worked in the payroll side of these plans I can't answer definitevly. My gut instict is to say the FICA takes precendence and would be withheld before the 401k deduction. Also, I don't foresee the payroll administrator willing to deal with reimbursements for deductions (I further have no idea if that's even legal.) But that's just an educated guess. Someone with payroll side knowledge should be able to answer this.

But before you put the cart in front of the horse, I'd determine what % of pay your wife's plan allows to be deferred. Just about every plan I've seen limits participants to a percentage less than 100 specifically to avoid situations like you've outlined. So while this is a great question, the plan may already have a provision to make the question academic.