Specific to S-Corporations, there are three retirement plans we recommend. These are the SEP-IRA (Simplified Employee Pension Individual Retirement Account), SOLO 401(k), and Defined Benefit Cash Balancing plan.
There are benefits and drawbacks to each plan and we’ll share information on each plan so that you can be equipped to know the correct plan for you!-
-
Simplified Employee Pension (SEP) IRA:
A SEP IRA has low-income requirements and low costs, making it accessible to anyone who is Self-Employed. However, it’s one of the least flexible account types and has contribution restrictions that limit catch-up contributions. SEP IRA is usually recommended for Sole Prop/LLC. -
SOLO 401(k)
The Solo 401(k) plan offers the highest flexibility in a retirement savings option and only requires a moderate income (over $60K). It provides optimal tax efficiency when paired with an S-Corp, flexible ways to increase retirement contributions (including catch-up and spousal contributions), and can be funded through pre-tax or after-tax dollars.
Solo 401k is usually recommended for S Corp with a net income under $500k as the preferred plan, and for S Corp with a higher net income, to be combined with the defined benefit plan.
-
Defined Benefit/Cash Balancing
This highly-involved retirement savings option is designed for high earners ($500K+ annually) looking to maximize their retirement savings. Be aware of the cost to set up and maintain compliance, which will range from $2k-$5k per year. Defined Benefit plan contributions are set by many rules and calculations! You would work with a specialist to determine plan limits and actual contributions.
-
To learn more about retirement options that are available for you, download our Retirement Savings for S-Corp Guide:
