Should I switch to an individual 401k?

[CJ122638]

Hi all,
I am a dentist with a partner in my new (ish) private practice. When we first opened we structured ourselves as a PLLC. Our first year we didn't make a ton of money so we just wrote ourselves checks directly from the business account to our personal accounts once per quarter for distributions. Now that we are starting to be more profitable our accountant has recommended that we each form our own LLCs (taxed as s corps). This way we continue to split the profit, but then take our specific expenses (my kids on payroll, my health insurance, etc) directly from our own businesses instead of reconciling who had what specific expenses. Apparently this will also save us quite a bit on taxes. I'm on board, but have a 401k question. When we opened the practice we started a 401k with a match and profit sharing. I am currently the only person using it. Our employees are either not yet eligible or not interested in contributing. My partner uses the 401k at another practice he owns (completely separate from our practice).

My question is, should I continue to contribute to the practice 401k or should I close (or just stop contributing to) that one and open an individual 401k for my personal s corp). My thinking is that with an individual 401k I can contribute up to $61k/year. With my office 401k I can contribute $20.5k and match myself 4% per our plan rules but only on the "reasonable salary" I pay myself not on distributions (so only $4,800 last year). If I understand correctly I can't take advantage of the profit sharing in my practice since I'm the only one in the plan.

Am I understanding all this correctly? Should I switch to an individual 401k? Is there some other, better option I'm missing?

Thank you for the help!

[Tim]

Hi all,
I am a dentist with a partner in my new (ish) private practice. When we first opened we structured ourselves as a PLLC. Our first year we didn't make a ton of money so we just wrote ourselves checks directly from the business account to our personal accounts once per quarter for distributions. Now that we are starting to be more profitable our accountant has recommended that we each form our own LLCs (taxed as s corps). This way we continue to split the profit, but then take our specific expenses (my kids on payroll, my health insurance, etc) directly from our own businesses instead of reconciling who had what specific expenses. Apparently this will also save us quite a bit on taxes. I'm on board, but have a 401k question. When we opened the practice we started a 401k with a match and profit sharing. I am currently the only person using it. Our employees are either not yet eligible or not interested in contributing. My partner uses the 401k at another practice he owns (completely separate from our practice).

My question is, should I continue to contribute to the practice 401k or should I close (or just stop contributing to) that one and open an individual 401k for my personal s corp). My thinking is that with an individual 401k I can contribute up to $61k/year. With my office 401k I can contribute $20.5k and match myself 4% per our plan rules but only on the "reasonable salary" I pay myself not on distributions (so only $4,800 last year). If I understand correctly I can't take advantage of the profit sharing in my practice since I'm the only one in the plan.

Am I understanding all this correctly? Should I switch to an individual 401k? Is there some other, better option I'm missing?

Thank you for the help!

Bookkeeping is a terrible reason to set up a different tax entity. Company code or profit center, department and account number are the elements. Shoot, you can add product line and slice and dice numbers every which way.

I will defer to spiritrider or another on the tax aspects.

[litovskyassetmanagement]

Hi all,
I am a dentist with a partner in my new (ish) private practice. When we first opened we structured ourselves as a PLLC. Our first year we didn't make a ton of money so we just wrote ourselves checks directly from the business account to our personal accounts once per quarter for distributions. Now that we are starting to be more profitable our accountant has recommended that we each form our own LLCs (taxed as s corps). This way we continue to split the profit, but then take our specific expenses (my kids on payroll, my health insurance, etc) directly from our own businesses instead of reconciling who had what specific expenses. Apparently this will also save us quite a bit on taxes. I'm on board, but have a 401k question. When we opened the practice we started a 401k with a match and profit sharing. I am currently the only person using it. Our employees are either not yet eligible or not interested in contributing. My partner uses the 401k at another practice he owns (completely separate from our practice).

My question is, should I continue to contribute to the practice 401k or should I close (or just stop contributing to) that one and open an individual 401k for my personal s corp). My thinking is that with an individual 401k I can contribute up to $61k/year. With my office 401k I can contribute $20.5k and match myself 4% per our plan rules but only on the "reasonable salary" I pay myself not on distributions (so only $4,800 last year). If I understand correctly I can't take advantage of the profit sharing in my practice since I'm the only one in the plan.

Am I understanding all this correctly? Should I switch to an individual 401k? Is there some other, better option I'm missing?

Thank you for the help!

I believe I addressed your questions in some detail on dentaltown. To add to that, you definitely need to have a W2 of anywhere from $150k-$250k (also depending on demographics) to max out profit sharing, and it would involve giving some to your staff. This will require an illustration from the TPA for sure, and your plan design might need to be examined/tweaked. If you don't do any PS, you give nothing to the staff, but if you do, staff will need to get the minimum required by the IRS. Your TPA should be the one answering your question about that.