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Consider for a moment why the lawyers would want to pay their wives a salary when all of the income shows up on the same IRS Form 1040 combined as "married filing jointly." The answer is because the wives, as well as the husbands, will be able to defer their salary into the law firm's retirement plan that they are interested in setting up, thereby doubling the amount of deferral that the lawyers alone would otherwise be able to contribute.

This essentially allows both Lawyer A and his wife, and Lawyer B and his wife, to defer more money as a couple for retirement. A point to keep in mind here is that, due to family attribution rules, both wives will be considered to be Highly Compensated Employees. This will be important when it comes to considering how nondiscrimination testing plays a role in the decision to set up a retirement plan.

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