S-Corp Retirement Plan Options When Already Maxing W-2 401K and Roth IRA?

This is really helpful! Quick question - does it matter that my W-2 employer's 401k is with Fidelity? Can I set up a Solo 401k anywhere or does it need to be with the same provider? Also, how much paperwork/hassle is involved compared to a SEP IRA?

You can absolutely set up your Solo 401(k) with any provider you want - it doesn't need to be with Fidelity. Each 401(k) plan is considered separate even though your personal contribution limit applies across all plans. Most major brokerages offer Solo 401(k) plans with fairly straightforward setup processes. Regarding paperwork, Solo 401(k)s do require a bit more administration than SEP IRAs. You'll need to complete a plan adoption agreement, and once your plan assets exceed $250,000, you'll need to file Form 5500-EZ annually. SEP IRAs have simpler setup with just a form to complete, and no annual filing requirements, making them somewhat easier to maintain. However, the potential for higher contributions with a Solo 401(k) often outweighs the additional paperwork for many business owners.

Did you have to set up the Solo 401k yourself or did your accountant handle it? My CPA is weirdly hesitant about helping with retirement plans and keeps pushing me toward simpler options that don't seem as good.

I'm confused about how this works with the annual limits. If the max 401k contribution is $23,000 for 2024, how can you contribute more through your S-Corp? Is there some loophole I'm missing?

I set it up myself with Vanguard after getting the analysis - it took about an hour online and a few forms to sign. My accountant was also pushing simpler options until I showed him the specific numbers for my situation. Some CPAs just default to what's easiest for them to manage rather than what's best for your tax situation. The $23,000 limit is just for your personal/employee contributions across all your 401k plans. The real magic is that your S-Corp, as your employer, can make additional contributions of up to 25% of your salary up to much higher limits (total limit is $69,000 for 2024). So while you can't contribute more as an employee beyond the $23,000 you're already doing at your day job, your S-Corp can make substantial employer contributions on your behalf.

How does this service actually work? Do they just call and wait on hold for you? Seems weird that there's a service just for getting through to the IRS...

Sorry but this sounds like BS. I highly doubt a random IRS phone agent would give reliable tax planning advice about complex S-Corp retirement plans. They usually just answer basic filing questions and aren't trained on advanced retirement planning strategies.

They call the IRS and navigate the phone system for you, then when they reach the front of the queue, they call you and connect you directly to the agent. Skips past all the hold time and disconnects. It's basically a hold-waiting service that knows how to navigate the IRS phone system efficiently. I understand your skepticism - I was doubtful too. The key is asking for a representative who specializes in retirement plans and business taxes. You're right that the front-line agents often aren't trained on complex matters, but they can transfer you to someone who is. I specifically asked to speak with someone in the business tax department who could address retirement plan questions for S-Corps, and they transferred me to someone knowledgeable who confirmed the rules about contribution limits across multiple employers.

Wow, I didn't even know about defined benefit plans for small businesses. $100k contribution sounds amazing. How complicated is the setup and ongoing maintenance compared to a Solo 401k? And roughly what additional costs are involved with the actuarial work?

The setup is definitely more involved than a Solo 401k. I work with a third-party administrator that handles all the actuarial calculations, required testing, and annual filings. It costs me about $2,000-2,500 per year for administration, plus initial setup fees around $1,500. You'll need to commit to funding it for several years - it's not something you can easily start and stop. The contribution amounts are calculated based on your age, income, and planned retirement age. The closer you are to retirement, the higher the allowed contributions. In my case, being in my early 50s with stable S-Corp income made it a great fit. The tax savings at my marginal rate more than offset the administration costs, effectively giving me a much higher return on investment from day one.

Distributions vs retirement plans isn't really an either/or situation. Distributions from your S-Corp don't reduce your tax burden now - you still pay personal income tax on S-Corp profits regardless of whether you take distributions or not. The retirement plans discussed here actually reduce your current tax burden while still allowing your money to grow. For example, employer contributions from your S-Corp to a Solo 401k are deductible business expenses, reducing both your taxable business income and self-employment taxes. The backdoor Roth has its place, but it's limited to $7,000 per year (2024) and doesn't provide current-year tax benefits. Most people in your situation would typically do BOTH - max out all available retirement options AND do backdoor Roth if they're over the income limits for direct contributions.