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Sole Prop or PSC-What's Better for 401(k)?

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    Sole Prop or PSC-What's Better for 401(k)?

    Hi,
    I lost my last message so I'll keep it brief. Would appreciate any input re: pro's and con's of setting up a 401(k) plan for a sole prop vs a PSC (personal service corp). In other words, which entity would be best suited?
    I have a client (attorney) who has both and needs to dissolve one of his entities.
    Thanks

    Happy Holidays!

    #2
    Professionals set up PSCs to give themselves fringe benefits, such as health insurance. But now that sole proprietors can deduct 100% of health insurance, the PSC seems to not have much of an advantage anymore. Some aspects make things worse, such as the flat 35% tax rate if you leave any profits in the corporation at the end of the year.

    I would suggest the attorney dump the PSC and have the sole proprietorship operate as an LLC or LLP for liability purposes. A sole prop can now set up a Safe harbor 401(k) without all of the complex nondiscrimination testing rules (see TTB page 13-19).

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      #3
      Thanks

      I tend to agree. Thanks for the input.
      Phil Eubank

      Comment


        #4
        Right on Target

        I also, find Bees Knees answer right on target and well put.

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