Husband S Corporation w/ 401k - Wife Sole Proprietor -

I have a two S Corporations (employee-shareholder) and I have three unrelated employees.

My wife has a sole proprietorship (schedule C).

We have kids under 21, so we are part of a "controlled group."

One of my S Corporations (the one with employees) has a safe-harbor 401(k) with 3% employer contribution (regardless of elective deferrals).

I want to make sure I'm doing this right . . . . my salary from the first S Corporation is $60,000 and is $20,000 for the second S Corporation . . . . my employer contributions is 3% x (60,000 + 20,000) and my employee contribution is $19,500.

My wife has self-employment income from her sole proprietorship of $50,000. She is able to be a plan participant under the "controlled group" rules and her employee contribution is $19,500 and her employer contribution is 3% x $50,000.

The Safe Harbor 401(k) I have set up include profit sharing as well. If we decide to do a 10% profit sharing one year, I would have an additional $8,000 (10% x ($60,000 plus $20,000)) and my wife would have have an additional $5,000 ($50,000 x 10%). 

Does that all sound correct?

11 hours ago, selfemployedinohio said:

I have a two S Corporations (employee-shareholder) and I have three unrelated employees.

My wife has a sole proprietorship (schedule C).

We have kids under 21, so we are part of a "controlled group."

One of my S Corporations (the one with employees) has a safe-harbor 401(k) with 3% employer contribution (regardless of elective deferrals).

I want to make sure I'm doing this right . . . . my salary from the first S Corporation is $60,000 and is $20,000 for the second S Corporation . . . . my employer contributions is 3% x (60,000 + 20,000) and my employee contribution is $19,500.

My wife has self-employment income from her sole proprietorship of $50,000. She is able to be a plan participant under the "controlled group" rules and her employee contribution is $19,500 and her employer contribution is 3% x $50,000.

The Safe Harbor 401(k) I have set up include profit sharing as well. If we decide to do a 10% profit sharing one year, I would have an additional $8,000 (10% x ($60,000 plus $20,000)) and my wife would have have an additional $5,000 ($50,000 x 10%). 

Does that all sound correct?

Nope.  You are treating your wife's self-employment income the same as your own W-2 income.  It doesn't work that way.  You need to start with filling out the 1040SE so you have your wife's proper earned income. Then determine her SH employer contribution from that by using the formula 3%/1.03 * earned income.  If you decide to do a 10% profit sharing her additional would be whatever 13%/1.13*earned income reduced by the SH is. Somebody else with more time on their hands will probably go into more detail.

Ok, thank you!

But I am correct in that since they are all controlled groups, my second S Corporation income and my wife's schedule C income would be included in the 401k? That is, she would be a participant and have to receive the 3% for the "safe harbor" and my 3% would be based on both of my S Corporation wages?

If your plan documents are properly set up, all of the income you discuss is treated the way you want. But your documents may not be set up the way you want.  Again, somebody else will probably go into detail.

My assumption is that you are doing your 2019 calculations.  2019 401k Elective Deferral limit is 19,000 not 19,500.

To piggy back on Mike's comment above.  The Plan you have set up now will need to be adopted by the second s-corp and the wife's sole proprietorship.  Any chance that has been done?  It's not that difficult, but if it hasn't been done for 2019, you may be out of luck.

On 3/7/2020 at 1:52 PM, selfemployedinohio said:

I have a two S Corporations (employee-shareholder) and I have three unrelated employees.

My wife has a sole proprietorship (schedule C).

We have kids under 21, so we are part of a "controlled group."

One of my S Corporations (the one with employees) has a safe-harbor 401(k) with 3% employer contribution (regardless of elective deferrals).

I want to make sure I'm doing this right . . . . my salary from the first S Corporation is $60,000 and is $20,000 for the second S Corporation . . . . my employer contributions is 3% x (60,000 + 20,000) and my employee contribution is $19,500.

My wife has self-employment income from her sole proprietorship of $50,000. She is able to be a plan participant under the "controlled group" rules and her employee contribution is $19,500 and her employer contribution is 3% x $50,000.

The Safe Harbor 401(k) I have set up include profit sharing as well. If we decide to do a 10% profit sharing one year, I would have an additional $8,000 (10% x ($60,000 plus $20,000)) and my wife would have have an additional $5,000 ($50,000 x 10%). 

Does that all sound correct?

My fellow responders are all correct; what they didn't spell out enough (for me, anyway) is that you need to have a professional handling and answering these question.  This is not "do it yourself" stuff.  You will do SOMETHING wrong.

On 3/8/2020 at 1:57 AM, Mike Preston said:

Nope.  You are treating your wife's self-employment income the same as your own W-2 income.  It doesn't work that way.  You need to start with filling out the 1040SE so you have your wife's proper earned income. Then determine her SH employer contribution from that by using the formula 3%/1.03 * earned income.  If you decide to do a 10% profit sharing her additional would be whatever 13%/1.13*earned income reduced by the SH is. Somebody else with more time on their hands will probably go into more detail.

Don't ask me why the congressional drafters decided they had to do things differently for a SIMPLE IRA than for SEP IRA and 401k employer contributions. However, a self-employed SIMPLE IRA 3% employer contribution is business profit * 92.35% * 3%.

I'm going to venture a guess that 50% of hand completed Form 1040s with self-employed SIMPLE IRA employer matches use business profit - 1/2 SE tax for the net earnings from self-employment and/or use 3%/103% for the contribution rate.

1 hour ago, spiritrider said:

Don't ask me why the congressional drafters decided they had to do things differently for a SIMPLE IRA than for SEP IRA and 401k employer contributions. However, a self-employed SIMPLE IRA 3% employer contribution is business profit * 92.35% * 3%.

I'm going to venture a guess that 50% of hand completed Form 1040s with self-employed SIMPLE IRA employer matches use business profit - 1/2 SE tax for the net earnings from self-employment and/or use 3%/103% for the contribution rate.

Uh, was anybody talking about a SIMPLE or a SEP?

17 hours ago, Mike Preston said:

Uh, was anybody talking about a SIMPLE or a SEP?

The answer to your question is NO. ?

1 hour ago, Larry Starr said:

The answer to your question is NO. ?

?

Sometimes my brain works in mysterious ways. 

I was answering a SIMPLE IRA question shortly before reading the OP and somehow managed to ignore everything of direct relevance including the damn thread title. I'm the one who should be crying tears of humiliation.