Retirement fund for an S Corp owner

Replies to This Discussion

Permalink Reply by John Huddleston on May 9, 2011 at 10:42am

The easiest to set up is a SEP (Simplified Empoyee Pension) plan.  If you have extended your 2010 return, you can set it up and fund it as late as 9/15/11 and it can still be a 2010 deduction.  You can contribute up to 25% of her salary from the S Corporation.  You will need to make the same percentage contribution for other eligible employees.  You can put in more for yourself, compared to other employees, if you adopt a 401k plan.  You needed to have that set up in 2010 for a 2010 deduction but it has the same funding deadline.  In addition to the percentage match, each eligible employee, including your wife, can designate (an elective deferral) up to $16,500 ($22,000 if over 50) of their salary to go to the retirement account (pretax or Roth type).  There are some discrimination rules but nondiscrimination test for elective deferrals and matching contributions are not required for a "Simple 401(k)".

• ▶ Reply

Permalink Reply by charyo on May 9, 2011 at 11:02am

Thank you John.

We have already filed our S Corp taxes, and all taxes for 2010. We just received notice last week that our S Corp status was approved by the IRS.

Now that we are officially set up as a S Corp, we can set up her retirement package.

I think this is what you are suggesting:

S Corp can contribute 25 % of her salary towards her retirement but can contribute more if we set it up as a 401K? is that correct?

And she can contribute the max amount of $ 16,500 towards her retirement.

 

Is that correct? We are not planning on hiring any more employees, so it is just us. Now if I, (as the husband-manager) draw a salary, can we do the same thing for me (that is,  S Corp contributes 25 % of my salary and I contribute $ 16,500)?

I am just trying to be clear on this.

 

Any recommendations for a pre-approved retirement plans?

Thank you so much.

Regards

• ▶ Reply

Permalink Reply by John Huddleston on May 9, 2011 at 11:11am

What will her salary be?  What would your salary be?

• ▶ Reply

Permalink Reply by charyo on May 9, 2011 at 11:24am

Her salary will be $8,000 per month and mine will be $ 7,000 per month, give or take a few. (Here I am assuming that we will be netting out all revenues to ensure 0 profits).

• ▶ Reply

Permalink Reply by John Huddleston on May 9, 2011 at 4:18pm

Since her salary is $96,000, the S corporation can make an additional $24,000 to a SEP.  If you have a 401K, your wife can direct that $16,500 ($22,000 if over 50) of the $96,000 be directed to the 401K, in addition to the $24,000 that the SEP puts in.  For you the SEP contribution would be $21,000.  Again, with a 401K you can put in an additional $16,500 or $22,000.

 

By the way, you may not want to zero out your profits in an S Corporation.  It doesn't change your income tax but your employment tax will be less if part is paid out as profit.  You still need to pay yourself a reasonable salary.

• ▶ Reply

Permalink Reply by Belen Castellano on July 17, 2011 at 6:37pm

another opticion is cash value life insurance; it can create an "instant estate", offering permanent protection, guaranteed cash value growth and easy, tax-free access to your funds. This product does all this and more.

Belen

• ▶ Reply

Permalink Reply by TravelerMD on November 4, 2011 at 11:40pm

I have a related question

In the above discussion salaries were around the 100k mark set high ....

If as a non-corperation I make 200k (AGI 149K) and contribute max 49k to SEP then ....

I make the move to an S corp and decided that a resonable salary for me would be 50K ... how can I get my retirement contribution back to the SEP 49K

would I be able to contribute 16k to 401k and 12.5 to SEP? if so this would only be 29k, far short of my non-corp contribution.

Would the S corp be able to contribute to 401K or SEP above my personal 29K contribution? Matching?

If not it seems as though the tax savings on SE tax and Medicare gained by becoming an S corp is lost because of reduced ability to pay onto SEP.

How are the dividends from s corp taxed and how do they factor into SEP contributions? retirement plan?

• ▶ Reply

Permalink Reply by Rich Sanidad on December 2, 2011 at 5:01pm

The employer portion of your contribution is limited to 25% of your W2 compensation so, 12.5K is the maximum amount and with the 401k, you can't exceed the 29k contribution.

Dividends do not factor into retirement plan contributions since it is not W2 compensation.

TravelerMD said:

I have a related question

In the above discussion salaries were around the 100k mark set high ....

If as a non-corperation I make 200k (AGI 149K) and contribute max 49k to SEP then ....

I make the move to an S corp and decided that a resonable salary for me would be 50K ... how can I get my retirement contribution back to the SEP 49K

would I be able to contribute 16k to 401k and 12.5 to SEP? if so this would only be 29k, far short of my non-corp contribution.

Would the S corp be able to contribute to 401K or SEP above my personal 29K contribution? Matching?

If not it seems as though the tax savings on SE tax and Medicare gained by becoming an S corp is lost because of reduced ability to pay onto SEP.

How are the dividends from s corp taxed and how do they factor into SEP contributions? retirement plan?

• ▶ Reply

Permalink Reply by John Bender on July 16, 2012 at 11:16am

Steidle Pension Solutions (www.sps401k.com) set up and has been administering my company's retirement plan for years now.  If you are looking for a great company to work with and fast, clear answers to all of your questions, I highly recommend contacting them.

• ▶ Reply

Permalink Reply by Mike Fox on July 12, 2013 at 6:29am

The principal value of the Retirement Funds is not guaranteed at any time, including at or after the target date

• ▶ Reply

▶ Reply to Discussion