Retirement options for Partnership (2 partners operating s-corp)

Submitted by Nicholas Sasser on Wed, 2023-05-03 14:55

Current situation is a small dental practice with two owners, each has their own individual s-corp, and we partnered together to form an LLC partnership. We have 8 employees in the partnership that receive their salary and wages, and whatever is remaining month to month we take as distribution based on our production percentage. Retirement is setup currently as a SIMPLE IRA thru partnership for the 8 employees through Fidelity, I have a separate SIMPLE IRA thru TD Ameritrade that I use in my s-corp when I run payroll and pay myself a salary as W-2 employee in my s-corp. My partner does the same thing through UBS I believe. The bigger question and issue is that I’d like to consider switching to a 401(k) plan or SEP IRA plan to stash away more funds than the SIMPLE IRA as I’m currently maxing it out. So, do all three entities have to be the same for retirement, meaning the partnership and s-corps have to be all in a SIMPLE IRA, 401(k) or SEP IRA; or can the partnership and my s-corp run a 401(k) and my partner whose older and wants to keep things fairly the same and not create another bucket, just run his simple. Can their be a variance? I’m seeing conflicting answers and my accountant was having to do some research because this throws a curve ball. Basically what are our options and how can we set up something different than having the SIMPLE IRA?



Submitted by Nicholas Sasser on Wed, 2023-05-03 17:49

I may be explaining this a little bit wrong. There is a partnership between two dentist, 50-50 ownership. Each dentist has their own corporation that has merged to form the partnership. The LLC partnership has the staff members, eight employees, from front office desk to hygienist to dental assistance that get paid through that partnership payroll and ithas a simple IRA set up just for those individuals. Each dentist in their own S Corp runs their own payroll and utilizes a simple IRA as well. The only other employees in the S Corp. are their individual spouses. One dentist wants to move to a 401(k) or sep IRA and the other dentist would like to be able to stay in his current investment style which is a simple IRA. Concerns and question: Can there be different investment plans or do they all have to be the same across the three entities of two S Corp.’s and the merged partnership. For example, if the eight employees and one partner want to utilize a 401(k) plan, can the other partner opt out and still continue his simple IRA plan? Or is his only option to join a 401(k) plan to contribute to retirement if we change?

Submitted by William Tuttle on Wed, 2023-05-03 17:59

  • Since the two S-Corps have an ownership interest and provide services to the practice, they are in an Affiliated Service Group with the practice.
  • They are all considered to be a single employer for retirement plan purposes.
  • It is not proper for the the practice to have a 5305-SIMPLE IRA plan and the two S-Corps to have separate SIMPLE IRA plans from the practice. However, it would be ok if the practice had a 5304 SIMPLE IRA and the S-Corps just had SIMPLE IRA accounts at different custodians under the same plan.
  • If it is the former, this needs correction. If the practice was not paying the Fidelity SIMPLE IRA annual administrative fees. Any fees directly charged to the participant’s accounts need to be reimbursed and IRS specified interest for the lost opportunity cost of their reduced investments.
  •  It is a violation of retirement plan anti-discrimination rules for owners to derive a benefit not available to non-highly compensated employees.
  • It goes without saying, the S-Corps can not have one-participant 401k plans.  If you want a 401k plan. The practice must have the plan for all W-2 employees including the two S-Corp 2% shareholder-employees.

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