Here are a few suggestions:


1. For 2007, have your wife try to max out her contributions into her 403b plan at work before she stops working. She can instruct her employer to withhold the bulk of her pay check for her 403b salary deferrals. (You didn't indicate how much longer she plans to work for.)

2. For 2008 and beyond, take a look at a SIMPLE IRA. If your wife can earn $11,370 in self-employment income, she can contribute $10,500 into a SIMPLE (in 2006). Perhaps she can find a moonlighting or consulting job that will pay her that much over the course of the year. You have until 10/1 to set up a SIMPLE for the first year you want to contribute to it.

Zip Code: 01801

Hi Andrew,

Thank you very much for your advice. Unfortunately, my wife is not in a profession where she could readily earn moonlighting or consulting income to fund a SIMPLE IRA. Is there any way I could pay her for child care services or as a personal assistant? If she were then to contribute that entire amount to a tax-deferred SIMPLE, it seems as though there would be no additional tax consequences for the family (we file our taxes jointly). Is there any way to make this work? Thank you again for your excellent website! --Mike

Zip Code: 55901

It's not uncommon for a dentist or physician with a practice to employ their spouse, and have the spouse participate in the practice's retirement plan.

If you're not self-employed, there needs to be a business purpose to employ a spouse. A mother caring for a child probably doesn't qualify. Perhaps you can pay her as your personal assistant, but you would have to be able to substantiate a true business purpose if the IRS ever asked.

Plus, there are taxes you will end up paying. Even though she will contribute most of her salary into a SIMPLE, you'll still need to withhold social security and Medicare taxes from what you pay her, and then, match that amount. Those taxes equal 15.3% of her pay. On $12k of salary, you're looking at an extra $2k of taxes. Add to that unemployment taxes and workers comp insurance, plus the cost of processing the payroll, and you're quickly to $3k of additional costs.

Consider investing that money in a 529 Plan for your child, which grow tax free thanks to a 2006 tax law change, or purchasing tax efficient mutual funds or other investments within a non-retirement account.

Zip Code: 01801