S Corp Termination & 401(k) Optimization

Terminate S corp election effective April 1, 2026. March 31 is the final day. Clean quarter-end timing. 5-year re-election lockout through 2030.

Run final S corp payroll with ~$30k bonus. Total W-2 ~$90k. Fund employer 401(k) simultaneously. Medicare taxes deposited on S corp EIN by March 31.

Skip employee deferral from S corp bonus. Preserve capital for employer contribution. Employee deferral flows through employer W-2 payroll April–December. Irreplaceable/fungible distinction.

Q1 distributions (~$30k) left as characterized. Reclassification rejected due to execution risk under 48-hour deadline. Cost of decision: ~$7,500 forgone. Deliberate risk-adjusted choice.

Transition from S corp retirement structure to LLC/employer plan structure. ⚠ Partially corrected by ADR-023: solo 401(k) is NOT frozen after April 1 — LLC (disregarded entity) can sponsor it with SE income as contribution basis. SEP-IRA is generally inferior to solo 401(k) at the same income level. IRA rollover window also remained open.

Deploy full ~$30k. No cash reserve held — April 1 entity becomes disregarded, cash moves freely. Credit card float covers expenses. Wire if needed for same-day funding.

29% combined marginal rate: 24% federal (MFJ) + 5% state (illustrative). Real 2026 MFJ brackets applied. Every dollar sheltered in traditional 401(k) saves $0.29.

Employer contribution = 25% of bonus amount only, not total W-2. Corrects prior calculation error. ~$20,000 employer contribution from available cash.

Phase 1: front-load at current 29% combined rate with appreciated securities. Phase 2: repeat when bracket increases. Two-phase charitable obligation executed as bracket-progression arbitrage. ~$13k total savings vs annual cash giving.

Elect max FSA contribution through employer. FICA efficiency at current income level. Use-it-or-lose-it managed via dependent care or medical spend plan.

Set up employee deferral through Paychex Flex at employer. DCA approach: spread over April–October rather than front-loading, to preserve flexibility for year-end adjustments.

Multiple children aged in over time through LLC. FICA-exempt employment under parent's disregarded entity. Each earns up to standard deduction (~$16k). State workers comp exemption pending verification.

Target ~$8,000–10,000 employer profit-sharing contribution at year-end. Conversation with employer's decision maker required. Opens additional 401(k) space toward the annual combined limit.

Deploy HSA idle cash → index funds (5 minutes, decades of compounding). Backdoor Roth sequence: IRA → 401(k) rollover first, then ~$14k/yr (~$7k each) tax-free compounding. Pro-rata blocker must clear first.

Pre-tax IRA balance must equal $0 on December 31 each year. Without this, pro-rata rule makes backdoor Roth conversions partially taxable. IRA is 100% pre-tax — no basis to preserve, clean full rollover is optimal.

Roll full Traditional and SEP IRA balances → employer 401(k) for both spouses. Solo 401(k) rejected for Phase 1: plan custodian requires physical check, 1–2 weeks out of market. Employer plan accepts direct transfer. Convert any small leftover to Roth. Verify $0 by Dec 31.

Three steps per person per year: (1) contribute ~$7k non-deductible to Traditional IRA, (2) convert immediately to Roth IRA, (3) file Form 8606. ~$0 tax. ~$14k/year combined Roth funding. IRA is an empty pipe — never held, always converted.

Use employer 401(k) as primary pre-tax vehicle — quality index funds, low fixed fee, accepts rollovers, zero admin. Solo 401(k) deferred until LLC income warrants employer contributions or mega backdoor Roth is configured. Employer 401(k) rolls into solo 401(k) if employment ends — nothing foreclosed.

Corrects ADR-005: solo 401(k) is NOT frozen after S corp terminates. LLC (disregarded entity) can sponsor the plan; contribution basis becomes net SE income. Employee deferral ($23,500) + employer (~20% SE income) available — far superior to SEP-IRA at the same income. IRA rollover window also remained open. ADR-020–022 decisions unchanged.

Generalized mastery architecture: 40 years violin → YY Method → cross-domain CTO/COO/CFO. Human captures. AI reads. Parallel sessions on same day (tax + device architecture) demonstrate methodology portability.

Evidence-based AI capability snapshot: operator caught 4 model errors. Model supplied mechanics, arithmetic, platform details. Human captures. AI reads. Version history is the evidence. Preserve all zips — scars are the truth.

This ADR set is a case study demonstrating the YY Method™ Home Edition v2.3. Numbers are illustrative, institution names genericized, identifying details adjusted. Dates and structural logic preserved. Not financial advice.

Intent-based search with tag cloud hints deferred to Phase 2. SEO/AEO/GEO foundations (static HTML, robots.txt, sitemap) immediate. Full structured data, FAQ markup, and LLM optimization after archive reaches sufficient depth.

Full build session record: case study selector home page, /case-001 URL structure, ADR-019 through ADR-023, HTTPS DNS diagnosis, discrepancy audit, correction ADR filed. What broke, how it was fixed, and why none of it is magic — it is hardened dev practice applied with intention. AI is a force multiplier for disciplined operators.