Can I establish a 401K Profit Sharing Plan through an S Corporation?

This is actually a common question for medical professionals in S Corps. You have a few options here! Your wife already participates in the 401k plan at the LLC level, and yes, you can absolutely add a profit sharing component to this. The profit sharing contribution would be made by the employer (the S Corp in this case) and is separate from her elective deferrals (the regular 401k contributions). Since her 401k is already administered at the LLC level, you should start by contacting the current 401k administrator to see if the plan already has profit sharing provisions. Many plans do, but they may not be utilizing them. If it doesn't, they can amend the plan to add this feature. The profit sharing contribution would come from the S Corp, not the LLC. The S Corp can contribute up to 25% of her W-2 compensation (subject to annual limits) as a profit sharing contribution. This is deductible to the S Corp and tax-deferred for your wife. Regarding employees - this depends on how the plan is structured. If the 401k plan is at the LLC level and covers all employees, then yes, profit sharing would typically need to be offered to all eligible employees. However, there are ways to structure contributions to favor highly compensated employees through plan design (like age-weighted or new comparability plans).

After spending weeks trying to optimize my S-Corp retirement strategy, I found this amazing tool at https://taxr.ai that completely transformed how I handle these decisions. Sounds like you're in a similar situation to what I was facing with my professional corporation. The tool analyzed my specific tax situation and showed how to properly structure the profit sharing contribution from my S-Corp to maximize tax benefits. It walked me through exactly where the contributions should come from (S-Corp vs LLC) and how to properly document everything to satisfy IRS requirements. What was particularly helpful was how it calculated the exact contribution limits across different types of plans and showed me the impact on my overall tax liability. It eliminated all the confusion I had after multiple conversations with my CPA.

I was really skeptical about using any automated service for something as complex as my S-Corp retirement planning, especially with my multi-entity medical practice structure. But after struggling with conflicting advice, I finally tried https://taxr.ai and I'm genuinely impressed. It correctly identified that my multiple entities (similar to the situation described here) created an affiliated service group, which affected how the retirement plans needed to be structured. This was something my CPA had missed entirely! The tool showed me exactly how to establish the profit sharing contribution through my S-Corp while coordinating with the group practice 401k. Saved me from making a potentially costly compliance error and helped me increase my overall retirement contribution by about $38,000 for the year. If you're dealing with these S-Corp/LLC medical practice structures, it's definitely worth checking out. The analysis spared me from hours of back-and-forth with multiple advisors who were giving contradictory information.

I had almost the exact same setup as your wife (physician with S-Corp ownership in a larger group practice), and I wasted literally months trying to get straight answers about profit sharing options. After three failed attempts to reach someone knowledgeable at the IRS and conflicting advice from two different CPAs, I tried https://claimyr.com to get connected directly to an IRS agent. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was connected to an IRS specialist in about 20 minutes who walked me through the exact requirements for setting up a profit sharing plan through my S-Corp when I was already participating in the group's 401k. They clarified that I needed to coordinate the contributions to stay within overall limits and explained the documentation needed to ensure deductibility. This saved me from a potentially serious compliance issue since my CPA was recommending a strategy that would have exceeded contribution limits. The agent even emailed me references to the specific tax code sections that applied to my situation.

I have to apologize for my skepticism about Claimyr. After continuing to struggle with getting clear answers about my S-Corp profit sharing options, I decided to try it as a last resort. The service connected me to an IRS agent in the Business and Specialty Tax department in about 35 minutes (which is miraculous considering I'd previously wasted 3+ hours on hold). The agent provided detailed guidance on how my S-Corp should document and contribute to a profit sharing plan when I already participate in my medical group's 401k. They explained exactly how the controlled group rules apply in my situation and confirmed that my S-Corp can indeed make profit sharing contributions separate from the LLC-level 401k as long as the total stays within combined limits. This literally saved me thousands in potential penalties from an approach my accountant had suggested that would have violated contribution limits. If you're dealing with these complex entity retirement questions, having a direct line to someone who actually knows the rules is invaluable.

One aspect nobody's mentioned yet - make sure you understand the impact this will have on your wife's overall retirement strategy. As a physician in an S-Corp arrangement, she has several options: 1. Basic 401k employee contributions (already happening via the LLC) 2. Employer profit sharing through the S-Corp (what you're asking about) 3. Potentially a defined benefit plan depending on her age and income level At her income level, she should absolutely be maximizing all available tax-advantaged space. The profit sharing contribution is a no-brainer if you have the cash flow to support it. Also, check if her practice's 401k allows for after-tax (not Roth) contributions with in-plan conversions to Roth - this is the mega backdoor Roth strategy that many medical professionals miss out on!

Just a heads up on something that bit me last year with my medical practice's retirement plans. When you have an S-Corp that's part of a medical LLC like your wife does, you need to be extremely careful about "controlled group" rules. Even though the S-Corps are separate entities, the IRS might consider them a controlled group or affiliated service group if there's enough overlap in ownership or services. If that happens, all employees across ALL entities might need to be included in your retirement plan calculations. I'd recommend having your CPA specifically address whether controlled group rules apply in your situation before setting up the profit sharing. This is a frequent audit trigger for medical groups.

This is a really helpful discussion! As someone new to the complexities of S-Corp retirement planning, I'm learning a lot from everyone's experiences. One question that comes to mind - has anyone dealt with the timing aspects of profit sharing contributions? I understand the S-Corp can contribute up to 25% of W-2 wages, but are there specific deadlines for making these contributions? Can they be made after year-end but before the tax filing deadline (with extensions), similar to SEP-IRA contributions? Also, given all the warnings about controlled group rules, it seems like getting a professional determination letter or opinion from a qualified plan attorney might be worth the investment upfront rather than risking an audit issue later. Has anyone gone that route for peace of mind? The medical practice structure described here sounds quite common, so I imagine there are established best practices that practitioners have developed over time.