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

[PEFin]

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!

[Bees Knees]

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).

[PEFin]

Thanks

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

[John of PA]

Right on Target

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