A spouse on your payroll can reap benefits

Q I have a private businesses. My wife volunteers to help me part time. Is it better to pay her a salary so she can build up Social Security or to pay her nothing and have a larger income on my part?

Phil, via e-mail

A "If she just needs a few [fiscal] quarters to qualify for Social Security," then put her on payroll, says David Bendix, president of Bendix Financial Group, in Garden City, N.Y.

But if she needs far more quarters, you must weigh the advantages of putting her on the payroll against the profits you might make if you instead took the amount of her salary and invested it in the stock and bond markets."

If you put her on the payroll, says Mr. Bendix, you can create a medical plan for her and deduct it from the business. (The plan could cover her entire family, which just happens to include you.)

You could also set up a retirement plan for her, which would give her more tax-deferred savings than through a spousal IRA.

But you will also have bookkeeping and administrative costs, and you will have to pay FICA (Social Security) contributions.

"Weigh the pros and cons carefully and see if you come out ahead," says Bendix.

Q I have a very small IRA with Pax World that was funded with money rolled over from a 401(k)retirement account. Can I now roll another small 401(k) plan (from another former job) into the same account?

J.C., Los Angeles

A According to a spokesman for Pax World, "yes, mail it along." Just make certain that you send it to your account as a rollover IRA.

If you take possession of the funds in the account, you could incur a tax penalty, as well as having to pay taxes on both your original contributions and earnings.

Q What is the most popular type of contributory retirement plan? I read accounts about so many different plans.

M.J., New York

A According to Ric Edelman, author of "The Truth About Money," (Harper Business), the 401(k) plan is offered by more companies than any other type of retirement plan.

Questions about finances? Write:

Guy Halverson

The Christian Science Monitor

500 Fifth Ave., Suite 1845

New York, NY 10110

E-mail: halversong@csps.com

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