Adding your 401(k) to Collective Payroll

Note: Payroll Features Are Available Only for S Corp Tier Members

Payroll functionality — including adding and managing 401(k) deductions — is currently available only for members on Collective’s S Corp tier. If you are on the LLC tier, payroll is not included in your plan.

Overview

This process below is for running 401(k) and Roth 401(k) through your S Corp by:

1. Funding them from S Corp business checking account and
2. Reporting them as benefits in the employee profile setup in Gusto.

This process IS NOT for Roth IRA, Traditional IRA, or SEP IRA. Roth IRAs and Traditional IRAs should be paid from personal accounts not connected to your S Corp accounting software and not reported through Gusto. They will be reported on your 1040 personal tax return, so please keep this information for your personal tax filing.

If you are operating as an S Corp then you can make SEP IRA through your business account. The SEP IRA contribution is not required to be recorded in Gusto but needs to be recorded in Collective Accounting.

First, read this article to learn about the different types of retirement accounts. We do not advise you which retirement account to get. You must make this decision on your own. Once you decide we will help you set it up in Gusto if applicable. 

If you decide to proceed, you'll need to:

1. Sign up with a financial institution that provides retirement accounts (click here if you need help learning about different  financial institutions).
2. Run your retirement contributions and deductions through payroll for W-2 reporting purposes.

Add your retirement plan to Gusto

1. In Gusto, look for Benefits on the left side menu
2. Select 401(k) under Add benefits
3. Select Already offer 401(k)? Add existing plan
4. Click Continue to manage your 401(k) manually instead 
5. Input Benefit Name (Keep it generic: 401k)
6. Benefit Type: select 401(k) or Roth 401(k). If you have setup a traditional Solo 401k, you would select '401k.' If you are making Roth contributions in the Solo 401k then you would select 'Roth 401k'.
7. Employee deduction per pay period: Select either percentage of gross pay or a fixed amount: input your employee deduction based on your 401(k) details. This is the amount Gusto will deduct from your employee's wages each pay period (if applicable)
8. Annual deduction limit: Select Use standard limit (The catch-up contribution limit is for employees aged 50)
9. Company contribution (employer) per pay period: Select either a percentage of wage or a fixed amount: enter your company contribution based on the 401(k) details
10. Annual maximum contributions: The maximum amount that your company can contribute for the year.

FAQ

How will I make my contributions?

You’ll make your contributions from your business checking or credit card account. Gusto does not remit payment to third-party service providers, so please ensure you make these payments yourself.

What if my contributions exceed the annual limits?

The system will prevent you from contributing above the max for the year.

How does this affect my Profit and Loss and Balance Sheet?

A journal entry is created in the books to record a business expense for the employer contribution portion (if option selected) as Employer Retirement Contributions account on the Profit & Loss statement.

These contributions will be recorded under the Retirement Plan Payable liability account on the Balance Sheet. You are now responsible for making the payments to the retirement plan administrator (both employee & employer portions). When the payment is made, you will categorize the payment to the Retirement Plan Payable liability account to reduce the amount due to zero.

If you need guidance on how to create the accounts, please reach out to your Member Relationship Manager (MRM). 

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.