Can I set up a 401K Profit Sharing Plan at the S Corp level instead of LLC?

The good news is that yes, you can set up a profit sharing plan at the S Corp level! Here's what you need to know: Since your husband is paid through his S Corp (which is a separate legal entity), the S Corp can establish its own retirement plan independent of the LLC. This is actually quite common in arrangements like yours. To get started, you'll want to: 1) Talk to a financial advisor or third-party administrator (TPA) who specializes in small business retirement plans. They can help set up the proper documentation. 2) The S Corp would establish a profit sharing plan as the employer, with your husband as the employee. 3) The plan would be based on his W-2 income from the S Corp, not the LLC payments. The beauty of this approach is that your husband won't need to offer this to LLC employees since they don't work for his S Corp. The S Corp is only required to cover its own eligible employees (which might just be your husband). The 25% contribution limit your accountant mentioned sounds about right - the actual limit is 25% of eligible compensation for profit sharing contributions, up to the annual limit ($69,000 total for all 401(k) contributions in 2024, including employee deferrals).

After reading through your situation, I had almost the exact same setup with my S Corp and ran into massive headaches trying to sort through all the retirement plan options. I finally found taxr.ai (https://taxr.ai) and uploaded my LLC agreement and S Corp docs - they analyzed everything and showed me exactly how to set up the profit sharing plan at the S Corp level without creating issues with the existing LLC 401k. What was most helpful was that they identified that my situation triggered "controlled group" rules (since I owned over 50% of both businesses) which affected contribution limits - something my regular CPA completely missed. Saved me from what would've been a pretty serious compliance issue. They provided a thorough report showing exactly what forms to file and deadlines to meet. Much clearer than the vague advice I was getting before.

I tried taxr.ai after seeing this thread and wow - wish I'd found this months ago. I uploaded my S Corp and partnership documents and they immediately identified that my current retirement plan setup was leaving money on the table. Their analysis showed I could establish a Solo 401(k) with profit sharing at my S Corp level while still participating in my partnership's plan, with clear guidelines on contribution limits across both plans. They even provided template resolutions for my S Corp to formally adopt the plan. What really impressed me was the personalized tax strategy report that outlined exactly how the profit sharing contributions would impact my tax liability - shows a projected $14,300 tax savings this year! The documentation explains everything in plain English rather than tax jargon. Definitely worth checking out if you're in a multi-entity situation like this.

I see a lot of people here struggling with these complex multi-entity retirement situations. After fighting with the IRS for months trying to unravel a similar mess with my medical practice S Corp, I gave up trying to get straight answers from the IRS's endless phone trees and used Claimyr (https://claimyr.com) to actually speak with someone at the IRS who could address my specific situation. They got me connected to an IRS agent in under 15 minutes after I'd spent literally weeks trying on my own. The agent confirmed that my S Corp profit sharing plan was set up correctly and wouldn't trigger controlled group issues with the clinic's plan. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c Instead of getting generic advice, I was able to explain my specific situation and get definitive guidance that I could document (got the agent's ID number). Cleared up so much confusion about what forms needed to be filed.

I need to eat my words from my earlier comment. After dealing with over 2 months of frustration trying to get answers about my own S-Corp retirement plan options, I finally broke down and tried Claimyr yesterday. Got connected to an IRS specialist in 17 minutes (I timed it) who actually knew about profit sharing plans and controlled groups. The agent walked me through the exact forms my S Corp needs to file to document the plan properly and confirmed that I can make profit sharing contributions of 25% of my W-2 income from the S Corp even while participating in another retirement plan through a related business. The agent even emailed me Publication 560 with the specific sections highlighted that apply to my situation. No more guessing or getting conflicting advice from different accountants. Should have done this months ago instead of stressing about it. If you're dealing with complicated multi-entity retirement planning, definitely worth getting clarification directly from the IRS.

One thing nobody has mentioned yet - make sure your operating agreement at the LLC level doesn't have any restrictions on partners establishing separate retirement plans. Some medical group agreements specifically address this to prevent unequal benefits among partners. Also, while you can establish the profit sharing plan at the S Corp level, you'll need to be careful about setting your husband's reasonable compensation properly. The IRS watches S Corps closely, especially professional service businesses, to ensure owners aren't minimizing salary to avoid payroll taxes. Since the profit sharing contribution is based on W-2 income, there's a balance to find between salary (which allows for higher retirement contributions) and distributions (which avoid FICA taxes).

Has anyone used Vanguard to set up their S Corp profit sharing plans? I've been looking at their small business options but not sure if they handle the more complex situations like this where there's both an LLC 401k and a separate S Corp plan.

This is a great question and I can see why it's confusing! I went through something very similar with my dental practice setup. One crucial thing to double-check is the timing for 2024 tax benefits. While the plan needs to be established by December 31, 2024, you actually have until your S Corp's tax filing deadline (including extensions, so potentially October 15, 2025) to make the actual contributions and still get the 2024 tax deduction. Also, don't feel embarrassed about asking your accountant again! This stuff is genuinely complex, and even tax professionals sometimes need to research the specifics. I'd recommend framing it as "I want to make sure I understand the implementation steps correctly" rather than asking for the explanation again. One practical tip: when you do set this up, make sure your S Corp payroll system can handle the timing of the profit sharing contributions. Some payroll providers need advance notice to process these correctly, especially if you're making the contribution near the filing deadline. I learned this the hard way when my payroll company needed three weeks to set up the proper coding! The separate entity approach really does work well for situations like yours - it gives you much more control over your retirement planning without getting tangled up in the LLC's existing arrangements.

This is such a helpful discussion! I'm actually an enrolled agent who works with a lot of medical professionals in similar situations, and I wanted to add a few key points that might help clarify things: First, regarding the controlled group rules that several people mentioned - this is absolutely critical to get right. Since your husband has 50% ownership in the LLC through his S Corp, you'll definitely need to consider the aggregation rules for contribution limits. The good news is that profit sharing contributions are calculated separately from 401(k) deferrals, but the total combined contributions across all plans are still subject to the annual limits. Second, I'd strongly recommend getting a formal plan document review before implementing anything. While the concept is straightforward (S Corp establishes profit sharing plan for its employee), the execution involves specific language around eligibility, vesting schedules, and distribution rules that need to comply with ERISA requirements. One thing I haven't seen mentioned is the potential impact on your husband's Social Security benefits calculation. Since profit sharing contributions reduce current W-2 income, there could be a long-term trade-off between current tax savings and future Social Security benefits. For most people the current tax savings win out, but it's worth considering especially for younger professionals. Also, make sure to factor in the ongoing administrative costs - annual Form 5500 filing, potential audits if assets exceed $250k, and TPA fees. These costs are usually worth it for the tax savings, but good to budget for them upfront. Feel free to reach out if you need any clarification on the compliance aspects!