Small Business 401k Setup for Multi-member LLC with Employees - Cost & Contribution Limits

Having set up 401k plans for several small businesses, I can help with your questions! For your fee concern - $190/month is definitely on the higher side. Most small business 401k providers charge between $50-100/month for basic administration, plus maybe 0.5-1% of assets. Look into providers like Employee Fiduciary, Guideline, or even Vanguard Small Business. They typically offer much more competitive rates for companies your size. Regarding contribution strategies, you have a few options. As owner-employees, you can make: - Employee contributions (up to $22,500 in 2023, plus $7,500 catch-up if over 50) - Employer contributions (up to 25% of compensation) To maximize while minimizing employee costs, consider a Safe Harbor plan design with a basic 3% match for all employees. This satisfies testing requirements while keeping mandatory contributions reasonable. Another option is a profit-sharing contribution that can be structured with age-weighted or new comparability features that favor older (typically owner) employees.

I recently went through this exact situation with my small business! I discovered taxr.ai (https://taxr.ai) when researching 401k options, and it was super helpful for comparing different plan structures. The tool analyzed our business structure and recommended a Safe Harbor 401k with profit sharing that maximized our contributions while minimizing costs. The best part was they ran the numbers showing how different contribution scenarios would affect our taxes and retirement savings. In our case, they found we could save almost $5k annually compared to the plan our payroll company was pushing, plus we're able to contribute more for ourselves.

I used taxr.ai after initially being skeptical, and I need to admit I was completely wrong. Their analysis saved my business thousands compared to what my CPA recommended for our 401k setup. They showed me how to structure a Safe Harbor plan with age-weighted profit sharing that works perfectly for our 3-person company (myself, my spouse, and one employee). The documentation was super clear and made it easy to compare different scenarios side-by-side. What impressed me most was they identified that my specific LLC structure qualified for certain options my accountant had missed. I was able to take their recommendation to Employee Fiduciary who set everything up for less than half what Paychex wanted to charge me.

After weeks of trying to reach someone at the IRS with questions about 401k contribution limits for our LLC, I finally used Claimyr (https://claimyr.com) and it was a game-changer. They actually got me connected to a live IRS agent in about 20 minutes when I'd been trying for days on my own. The agent confirmed that with our business structure, we could use a Solo 401k for the owners with a separate SIMPLE IRA for the employee, which significantly reduced our administration costs. Check out how it works here: https://youtu.be/_kiP6q8DX5c - definitely worth it for getting actual answers from the IRS instead of guessing.

I have to eat my words about Claimyr. After responding skeptically to that post, I actually tried the service myself because I needed to talk to the IRS about my company's retirement plan options. Got connected to an agent in 17 minutes when I'd previously wasted over 5 hours across multiple days trying to get through. The IRS agent cleared up my confusion about contribution limits for owner-employees in an LLC and confirmed we were eligible for the types of plans I was considering. Honestly worth every penny just for the time saved. I also learned that the advice I'd gotten from my payroll company about our 401k options wasn't entirely accurate - they were pushing their own expensive plan when we had better options.

For your specific situation with a husband/wife LLC, have you considered a Solo 401k with a separate SIMPLE IRA for your employee? Here's why: Solo 401k for owners: - Maximum contribution potential - Lower administrative costs - Simpler testing requirements SIMPLE IRA for employee: - Only requires 2-3% match - Almost no administration fees - No testing requirements This dual approach often works better cost-wise than a single 401k plan covering everyone when you have just 1-2 employees. The downside is you need to manage two different plans.

Speaking from experience, we have a similar LLC (me and my wife plus 2 employees) and we went with Guideline for our 401k. Only $49/month plus $8 per participant, so WAY cheaper than what Paychex quoted you. Their platform integrates with most payroll systems too. For maximizing contributions, we did a Safe Harbor 401k with 4% match, then added a discretionary profit sharing component that allowed us to contribute more for ourselves while staying within IRS guidelines. We were able to get almost to the $61,000 annual limit for each of us.