S corporation owners face a unique set of difficulties when it comes to retirement planning for themselves and their employees. They must manage both individual retirement savings goals as well as employee needs while dealing with Subchapter S of the Internal Revenue Code in an effective manner. Here we explore some popular options for S-corp owners to maximize tax deductible retirement contributions.
While traditional retirement strategies for self-employed individuals tend to revolve around solo 401(k) and SEP IRA accounts, these plans may not always be the most suitable choices for S-corps. S-corp owners with significant pass-through income may find their contributions limited depending on how much income is earned each year; fortunately, there are other plans available which allow S-corp owners to increase their retirement contribution limits through various plan types and strategies.
S-corp owners typically utilize traditional 401(k) profit sharing plans or defined benefit pension plans to maximize their annual contributions. These options can help companies with significant assets and income meet payroll tax compliance while still optimizing employee contributions while reducing payroll taxes.
S-corporationss with limited assets may find that 401(k) plans may not provide an ideal solution; SEP IRAs could be better. When dealing with S-corps that employ many people, taking advantage of “new comparability profit sharing” rules or other strategies to get high 401(k) contribution limits may also be more suitable.
Another crucial consideration for S-corporations owners is how they handle contributions or distributions from company profits or distributions. Although not considered earned income by retirement plans, such contributions or distributions may help lower owners’ taxable liability by decreasing S-corp wages paid out directly.
An S-corp can take advantage of the specific tax rules surrounding qualified retirement plans by offering Roth or SIMPLE IRAs to both owner-employees and non-owner employees alike. This strategy offers both tax deductions and tax-free returns on investment for all its workers; and can help attract and retain top talent. While not suitable for every business, offering these plans could prove very successful when used strategically.