Working With a Spouse

Many FIREees come in pairs. The hard work of a couple coupled with vigorous saving and a favorable tax code creates a scenario in which neither partner has to work anymore. Sometimes both want to continue to work. Every once in a while, they want to work together! Sometimes there are children, too.

Is there a way to improve family-style employment after reaching FIRE?

This article won’t discuss the dynamics of working with a spouse and/or kids. Rather, let’s discuss some of the financial and logistic benefits of doing so.

Finances:

There are a number of sites discussing finances as they relate to spouses working together. Please discuss them with your accountant or other tax professional before implementing them.

· The White Coat Investor does a great summary of employing spouse here, concluding that it doesn’t make sense to do so in most cases. He discusses a couple scenarios when employing a spouse is the right financial decision, all of which include the ability to fund tax-advantaged retirement accounts. These include situations when a spouse can defer social security taxes when employed both by you and elsewhere, when a spouse can maximize retirement contributions by taking less pay, and if your spouse makes Megabackdoor Roth IRA contributions. This is an expert level discussion of tax optimization and is worth study, even if you’re no longer interested in maximizing your retirement contributions!

· One of the comments in the above link discusses a Section 105 reimbursement. This is a situation where an eligible small business reimburses employees for necessary health expenses rather than paying insurance premiums for them. The business then deducts those expenses from its taxes. The business also reduces its FICA and FUTA taxes. This could work well in a situation where one spouse has a lot of medical expenses that could not otherwise be written off.

· Many FIREees enter the retirement arena after being supersavers at full-time, W2 style employment and have thus never been exposed to the perks of 1099 income. Let’s suffice it to say there are many perks to 1099 income, with tax benefits associated with small business expenses being a particularly important one for FIREees. To take advantage of these, of course, you’ll need a “business” that provides 1099 income. Here’s a list of side-hustle style small businesses found in quick a Google Search but there are many options. Here’s an interesting discussion by a stay-at-home dad who built a small home business, allowing him to take advantage of small business tax deductions. As he mentions, small business income is a good way to avoid the “second income trap”, which would apply to any additional income in FIRE, as well. Small business income is great both for spouses working together post-FIRE or for a situation where one spouses works and has W2 income and is thus not eligible for these deductions.

How are you generating income with your spouse?