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  • Solo 401K and S corp

    help me resolve debate.

    My buddy is private practice Nephrologist.  Solo doctor.  Has about 5 employees.  he is organized as S corp.  Does not have any sort of retirement plan through his office (shut it down two years ago due to aggravation, high fees, etc).  He takes call at hospital and gets paid ~60K per year on 1099 for that.  He has EIN number for this and says he is a sole proprietor.  I tell him to set up solo 401K under his sole proprietorship using the EIN.  With 18K employee and probably close to 10K employer contributions.  He talks to two accountants and they both say he can not do that because since he also has a S corp with employees, he can not have a solo 401K without setting up profit sharing and such for his employees.  i say that doesn't matter, you are setting up this through your other business that you get paid 1099 on.  he tells accountants that and they still say no.  what say you?

  • #2




    help me resolve debate.

    My buddy is private practice Nephrologist.  Solo doctor.  Has about 5 employees.  he is organized as S corp.  Does not have any sort of retirement plan through his office (shut it down two years ago due to aggravation, high fees, etc).  He takes call at hospital and gets paid ~60K per year on 1099 for that.  He has EIN number for this and says he is a sole proprietor.  I tell him to set up solo 401K under his sole proprietorship using the EIN.  With 18K employee and probably close to 10K employer contributions.  He talks to two accountants and they both say he can not do that because since he also has a S corp with employees, he can not have a solo 401K without setting up profit sharing and such for his employees.  i say that doesn’t matter, you are setting up this through your other business that you get paid 1099 on.  he tells accountants that and they still say no.  what say you?
    Click to expand...


    The accountants are correct. Think of it this way - if all you had to do to avoid contributing to a retirement plan for your employees was to set up a side business and funnel money there, wouldn't everybody employees do that? Or at least a lot of businessowners would. Doesn't matter that the income is from an unrelated business, either. HE'S the related party with his foot in both businesses.

    I'm sorry you lost  :roll:
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      thanks

      what about a SEP IRA.  same rules for that?

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      • #4
        Essentially he has a "controlled group" of employers.

        Thus both "employers" would be lumped together and subject to ERISA laws requiring you to cover the employees.

        I believe SEP is similar, but someone will confirm I'm sure.

        https://www.irs.gov/pub/irs-tege/2013cpe_related_employers.pdf

         

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        • #5
          Yes, same for SEP, sorry.
          Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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          • #6
            thanks so much for response.

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            • #7




              help me resolve debate.

              My buddy is private practice Nephrologist.  Solo doctor.  Has about 5 employees.  he is organized as S corp.  Does not have any sort of retirement plan through his office (shut it down two years ago due to aggravation, high fees, etc).  He takes call at hospital and gets paid ~60K per year on 1099 for that.  He has EIN number for this and says he is a sole proprietor.  I tell him to set up solo 401K under his sole proprietorship using the EIN.  With 18K employee and probably close to 10K employer contributions.  He talks to two accountants and they both say he can not do that because since he also has a S corp with employees, he can not have a solo 401K without setting up profit sharing and such for his employees.  i say that doesn’t matter, you are setting up this through your other business that you get paid 1099 on.  he tells accountants that and they still say no.  what say you?
              Click to expand...


              While you can't avoid the controlled group rules, there is no need to avoid setting up a 401k plan just because of previous bad experience.  The first step is to get educated about how to set up the best retirement plan for your buddy:

              https://www.whitecoatinvestor.com/the-ideal-retirement-plan-for-your-practice

              While some docs like to DIY, others need a lot more help, and with retirement plans things can definitely get stressful if there is not enough support and plan oversight.  The main point is that plan providers are not fiduciaries, so they are not working in your best interest, so the solution is to start with a fiduciary who is compensated with a fixed/flat fee rather than AUM fee, and who's not trying to sell you anything, but rather has the capacity to put together the best possible plan for the practice cost-effectively.
              Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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