Choosing a retirement account for a new LLC

[KPMU]

Hi. My wife and I finally took the plunge and setup our own clinic August 2017. It is an LLC which will be taxed as a S corp. Wages will be ~130-140K for each of us. We will timeshare the clinic and will only be working part time.

I would like to be able to maximize our contributions to our retirement account. We have common law employees other than the wife and I, and will be subject to safe harbor rules if we would get 401Ks. I've looked at the SEP IRA, SIMPLE etc. but have not really made a decision. Any advice? I'm open to restructuring if needed. Would spinning off the clinic staff to another LLC allow us to offer different retirement plans?

 

[jfoxcpacfp]

Whatever plan you offer must be offered to your employees, too, even if a separate entity is their employer. If you cannot afford a 401k, probably best to start with a SIMPLE plan. When you are able to set your wages higher, I'd recommend moving to a 401k.

[litovskyassetmanagement]

KPMU wrote:

Hi. My wife and I finally took the plunge and setup our own clinic August 2017. It is an LLC which will be taxed as a S corp. Wages will be ~130-140K for each of us. We will timeshare the clinic and will only be working part time.

I would like to be able to maximize our contributions to our retirement account. We have common law employees other than the wife and I, and will be subject to safe harbor rules if we would get 401Ks. I’ve looked at the SEP IRA, SIMPLE etc. but have not really made a decision. Any advice? I’m open to restructuring if needed. Would spinning off the clinic staff to another LLC allow us to offer different retirement plans?

 

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If you have employees, this will make all of the difference.  In order to figure out what the best plan for you would be, a design study has to be done to compare various retirement plan options.  While SIMPLE is a really good option, it might not be the best one for you if you want to make higher tax-deferred contributions.  This article will give you a good idea as to what is involved in doing the analysis and how you can at least ballpark whether a SIMPLE would be a better choice vs. a 401k for you:

http://www.dentaltown.com//Dentaltown/Article.aspx?i=403&aid=5625

A SEP won't work as a long term plan because of the high cost of employer contributions, though sometimes SEP can be a good transition plan if you can exclude employees (usually for a 1 year at most, though sometimes 2 years might be possible if everything aligns just perfectly).  This is also part of the analysis that has to be done, and usually SEP works as a great year-end plan for some practices.

The first step to do this analysis is completing a census, doing a design study which will include an illustration for a 401k with profit sharing (especially if you want to maximize your available 401k contributions), and then running the numbers for your specific situation.  Everyone's numbers are different, so for some a SIMPLE would work out better, and for others a 401k with profit sharing would be best.