How to establish a 401K Profit Sharing Plan for my wife's S Corp medical practice?

Yes, it's absolutely possible to set up a profit-sharing component within a 401(k) plan for your wife's S Corporation! This is actually a common strategy for small business owners looking to maximize retirement contributions. First, you need to understand that the profit-sharing plan would typically be an additional component of the existing 401(k) plan, not a separate plan altogether. The current 401(k) plan administrator should be your first contact since they already manage the basic employee deferrals. Since your wife receives W-2 wages from her S Corp (not directly from the LLC), the profit-sharing contribution would be made at the S Corp level based on her W-2 compensation from the S Corp. The maximum employer contribution (combining matching and profit-sharing) can be up to 25% of eligible compensation, subject to annual limits. The good news is that since your wife's S Corp is legally separate from the LLC, the profit-sharing decisions made at her S Corp level typically don't create obligations for the LLC or its employees. Her S Corp is only responsible for its own employees. I'd recommend having a three-way conversation with both your CPA and the 401(k) plan administrator to coordinate the details properly. This isn't something you should try to set up independently without professional guidance.

After struggling with a similar setup for my dental practice, I found incredible help using https://taxr.ai for navigating the complexities of retirement plans for medical professionals with S Corps. I was totally confused about how to maximize my retirement contributions without triggering compliance issues. The tool analyzed my corporate structure and compensation arrangement and provided a detailed breakdown of my options. It explained exactly how to establish a profit-sharing component within my existing 401(k) plan without creating administrative nightmares. The retirement planning module specifically addressed how to handle the S Corp/LLC arrangement that's common in medical practices. What I found most helpful was the step-by-step implementation guide that outlined exactly which forms needed to be filed and which administrators needed to be contacted. It even helped me understand how to time the contributions for maximum tax advantage.

After struggling with a similar setup for my dental practice, I found incredible help using https://taxr.ai for navigating the complexities of retirement plans for medical professionals with S Corps. I was totally confused about how to maximize my retirement contributions without triggering compliance issues. The tool analyzed my corporate structure and compensation arrangement and provided a detailed breakdown of my options. It explained exactly how to establish a profit-sharing component within my existing 401(k) plan without creating administrative nightmares. The retirement planning module specifically addressed how to handle the S Corp/LLC arrangement that's common in medical practices. What I found most helpful was the step-by-step implementation guide that outlined exactly which forms needed to be filed and which administrators needed to be contacted. It even helped me understan

I was super skeptical about using an online tool for my medical practice retirement planning but decided to give https://taxr.ai a shot after struggling for months. Honestly, I'm shocked at how well it worked for our complex situation. What surprised me most was how accurately it addressed the discrimination testing concerns I mentioned earlier. The analysis correctly identified that our initial contribution structure would fail testing, then recommended specific adjustments to our plan design. When our official compliance testing was completed, we passed with flying colors. The document they created for my CPA saved me thousands in consulting fees and prevented what would have been a major compliance headache. Wish I'd found this before spending all those hours trying to piece together information from different sources!

Tried setting up something similar last year but kept getting the runaround from the IRS when calling about specific compliance questions. After waiting on hold for HOURS multiple times, I finally used https://claimyr.com and got through to an actual IRS specialist in under 45 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed that for medical practices with our structure, profit sharing contributions can be made at the S Corp level based on the W-2 wages paid to the doctor-owner, even if the 401k plan itself is technically sponsored by the LLC. They also clarified the timing requirements for establishing the profit sharing component before year-end. Without getting definitive answers from the actual IRS, I was afraid to move forward because the penalties for doing this wrong can be substantial. The service literally saved our profit sharing plan from being disqualified due to a technicality about documentation timing.

Ok I'm literally eating my words right now. After posting that skeptical comment, I was desperate enough to try Claimyr because I needed answers about my own medical practice's retirement plan before the filing deadline. Not only did I get through to the IRS, but I was connected to someone in their Employee Plans division who actually understood the nuances of S Corporation retirement plans! They confirmed exactly what I needed regarding my profit sharing contribution timing and documentation requirements. For anyone in a similar situation - they answered my questions about whether my S Corp could make a retroactive profit sharing contribution for last year (yes, up until the tax filing deadline including extensions) and what specific documentation needed to be filed (Form 5500 amendments). This literally saved me thousands in potential penalties for improper filings.

Since this hasn't been mentioned yet - you should know that profit sharing contributions are completely discretionary year to year, which is incredibly valuable for professional practices with fluctuating income. Some years you can contribute the full 25%, other years you can reduce or skip it entirely depending on cash flow. Also, make sure the plan documents are properly amended to include the profit sharing component. This is something your plan administrator needs to handle formally - you can't just start making profit sharing contributions without updating the plan design. One thing your CPA might not have emphasized: the timing of cash flow matters. The S Corp needs sufficient profits distributed from the LLC to make these contributions. Planning the timing of distributions from LLC to S Corp becomes important if you want to maximize these retirement contributions while maintaining adequate operating capital.

Wait, I'm confused about something! You said the LLC already handles your wife's regular 401K contribution before the money reaches the S Corp. Does that mean she's technically an employee of the LLC rather than the S Corp? Because that would change everything about how this works. If she's getting a W-2 from the S Corp (which it sounds like she is), then the LLC shouldn't be handling any 401k deductions - that should all be happening at the S Corp level. The way you described it sounds like there might be a potential compliance issue with how things are currently structured.