Intro to retirement plans
The perks of owning your own business are bountiful but one question many S Corp owners have is how to contribute to their retirement. Here are the plans that our members have found most beneficial to them as an S Corp owner.
Solo401(k)
Solo 401(k) is a retirement saving and investment plan employers can offer that provides employees a tax deferral on money contributed. With a Solo 401(k), a self-employed business owner can make contributions as both the employee and the employer. You can even deduct your employer contributions as a benefits expense. For more information on Solo 401(k) plans, you can visit the IRS website.
SEP IRA
A Simplified Employee Pension Plan (SEP IRA) is a traditional IRA for self-employed individuals and small-business owners. A SEP IRA is typically very low cost, and easy to implement. The SEP IRA can be a great alternative for making tax-deductible contributions because it allows business owners to contribute more than some other retirement options.
For more on retirement options, here’s a comprehensive list of Self-Employed Retirement Plans
Why use a retirement plan for your business
S Corp owners benefit greatly from contributing and these benefits can extend to your personal and business taxes. For example, with a Solo 401(k), your employee contributions can be made on a pre-tax basis, which defers your taxable liability, and your employer contributions are a deductible expense of the business, also reducing your taxable liability. All while helping you plan for your future!
Not all retirement plans are the same
Your S Corp will not benefit from a Roth or Traditional IRA. Contributions to Roth and Traditional IRAs should be paid from a personal account that isn’t connected to your S Corp. Contributions will still be reported on your personal tax return, so please tell us about them before the end of the year.
Collective and retirement plans
Collective members ultimately decide the retirement plan that suits their goals and needs and are responsible for opening the account with the provider of their choosing. Collective’s role is ensuring your contributions are properly captured as business deductions on the accounting and tax side. We’ll provide you with resources and walk you through how to set up benefits in your payroll account through the Collective Dashboard.
Once you've chosen your retirement account and start to contribute, the employer contributions should be coming out of your business account.
Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as legal, financial, or tax advice. It is not intended to be a substitute for obtaining legal, accounting, or other financial advice from an appropriate and/or licensed adviser, or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.