Best option for husband/wife company?

[Lori H]

married couple has an 1120 company. He w2's 50K, wife is 20K. Net profit is appx 170K after they pay themselves. He also has sole pro income of appx 100K net, 140K gross. He also receives w-2 from outside sources. They are interested in reducing their taxable income. Neither participate in any other qualified plan nor do they plan on having employees. He is a software engineer and the major reason a corp was established was to avoid the Sched. C, however, not every company the husband contracts with are willing to pay him through the corp.

I'm thinking a PSP would allow them to put 25% of 70K away for the corp and then he could possibly set something up for the sole pro. Is there anything that would not permit that?

[Bird]

Set up one plan and have all companies adopt it. He can make 401(k) contributions from his self-employment income and she can make 401(k) contributions if she takes a bonus. Plus 25% of compensation as an employer profit sharing; I think they could each max out at $49K if they really wanted to. (Might have to show some of the profits as comp.; one has to wonder if comp is unreasonably low anyway, and if it's a regular C corp I doubt they want to leave the profits in anyway.)

[Lori H]

Thanks for your comment.

If the plan defines comp as W-2, would that cover the sole pro too?

[John Feldt ERPA CPC QPA]

The document will state (I expect) that compensation for a self-employed individual will be their net earnings from self-employment, regardless of any election made in the adoption agreement regarding compensation.

If they want to use up more of the $170,000, they could adopt a DB plan as well.

edit: typo

[Bird]

Using "W-2 comp" for your comp definition does not mean that comp has to be reported on a W-2 to be plan comp; self-employment income counts.