I’m looking for advice regarding how to set up retirement plans for my business so I can defer as much taxes as possible.
Spouse and I co-own the S-Corp.
We started over 2 years ago, but only started getting revenue and hiring employees in the last 12 months.
We have about 20 employees, but are actively hiring and may have about 30 employees by year’s end.
Most are paid about $20/hr, but a few are at about $30/hr, and a couple at $45/hr. Most are working 20-40 hrs/week.
We expect income (EBITDA) to be about $500,000 this year and possibly $1,000,000 next year, before we take any salary.
I have spoken with Fidelity and they offered 3 options: SEP-IRA, Simple IRA, and 401k.
Below are some notes from my phone call.
SEP IRA - Simplified Employee Pension Plan | Fidelity
Allows 25% of comp up to $58,000
Employer only contributions (eg 25% for self and 25% employees)
Must be same % for all employees
Can add on eligibility reqs - can be based on yrs (eg 3 of last 5 years)
Year-to-year plan. Don’t have to contribute every year, unlike 401K.
Like “baby 401k”
Deferrals and Employer matches
Salary deferral up to $13,500. $ for $ match anywhere from 1% up to 3%. Must be 3% 3 of every 5 years.
Eligibility Reqs - based on $ earned. Can limit if employee earns <$5000 in any previous 2 years. or not expected to $5000 in current year.
I was only given the link for this info.
My ultimate goal is to have the most money at the end of the day. I also would like to keep my employees happy. I’m not sure how many would be interested in or contribute to any of these plans. Most of my employees are on the younger side and probably less likely to be saving much.
All of these plans seem to have some major drawbacks for me as an employer.
SEP-IRA - If my corporation contribute 25% of my paycheck, the corporation has to give all employees 25%.
Simple-IRA - Can only defer $13,500.
401K - Limited to $19,500 and there are a lot of fees. Investment choices are limited.
I’m comparing this all to my last S-Corp in which I had a Self-Employed 401k Plan from Fidelity with Fidelity and my spouse and I were able to defer a lot more (up to $58,000/person for 2021) at no cost with infinite investment choices. Now, it’s a lot more expensive to do so.
One thought is to create another corporation in which only my spouse and I are employees. This new corporation gets paid by the current corporation for its services. Now, my spouse and I are the only employees, so we can do the Self-Employed 401k. I’m sure this runs afoul of some law.
Any advice as to which company to use to administer the retirement plan and how to structure it to maximize the amount of money we can defer at the lowest cost possible is greatly appreciated. I would like to hear from any others who have their own businesses and have administered retirement plans.