Are you an S Corporation owner planning your retirement? Navigating the world of retirement planning as an S Corp owner comes with unique challenges and opportunities. In our guide below, we share more about the best retirement plan for S corp owners.
Keep reading to learn more and make informed and confident decisions moving forward.
Solo 401k / Individual 401k
This is designed for self-employed individuals without employees other than a spouse. This plan allows higher contribution limits compared to other plans. It includes both employee and employer retirement contributions, offering tax-deferred growth and various investment options.
If you want the most out of your 401k, you can maximize your 401k with Empower.
Simple IRA
This is perfect for smaller S Corp businesses that have up to 100 employees. It allows employers and employees to contribute to the plan. A bonus is that it has less administrative complexity than most other plans.
Simple IRAs are also tax-deductible, and you are allowed to make pre-tax contributions. Keep in mind that employers have to make either a matching contribution up to 3% of the employee’s compensation or a non-elective contribution of 2% of the employee’s compensation.
Another bonus is that contributions made by the employer are immediately vested. This means that employees have full ownership of employer contributions without waiting.
Defined Benefit Plans
Defined Benefit Plans are a type of retirement plan that offers substantial benefits in terms of tax advantages and high contribution limits. It is beneficial for S Corp owners because it’s a more aggressive retirement saving plan.
Compared to other retirement plans, Defined Benefit Plans allow for substantial contributions. This means that you can contribute a lot more with a defined benefit plan than with other retirement plans.
Contributions made by the S Corp into a Defined Benefit Plan are tax-deductible. This means you have a major, significant tax advantage as a business owner. Also, the contributions grow tax-deferred until retirement, allowing for tax-efficient wealth accumulation within the plan.
Profit Sharing Plans
This is a flexible retirement savings option that allows the employer to contribute a portion of the company’s profits. When the company has a more profitable year, the contributions can be a lot higher.
Keep in mind that employer contributions are tax-deductible for the business, providing potential tax benefits while allowing for flexibility in contribution amounts from year to year.
Employers can set eligibility requirements for employees. For example, they can require tenure or hours worked to participate in the plan. These requirements have to apply to all eligible employees.
A major bonus is that this plan can increase employee loyalty and motivation because their retirement is directly tied to the company’s success.
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Ready to Choose the Best Retirement Plan for S Corp Owners?
Now that we have shared the top options, you can make an informed decision and choose the best retirement plan for S Corp owners for your needs. Remember, you can never start too early when it comes to preparing to retire because you don’t want your retirement funds to be too low when the time comes.
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