I'm likely going to switch plans I believe. I appreciate the information. To hit anything reasonable with a 401k though it will need to be employee contributions as employer contributions are capped right?

My problem which I can rework fairly easily, is that like most S-Corp small businesses my W-2 income is not a huge portion of my actual income.

So I guess I'll just need to change that around? Seems like I'll be throwing up a huge audit red flag but so be it I haven't done anything wrong.

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Posted by slackster

Houston

Member since Mar 2009

85399 posts

Posted on 1/5/24 at 3:27 pm to baldona

quote:
My problem which I can rework fairly easily, is that like most S-Corp small businesses my W-2 income is not a huge portion of my actual income.

When you say “not a huge portion,” be careful. SCorps are coming under pressure for too much owner draws as a percentage of income. It’s not a problem until it is.

As far as 401k, probably not worth it for only 3 employees. May want to stick with SEP and be generous, or consider SIMPLE IRA.

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Posted by UpstairsComputer

Prairieville

Member since Jan 2017

1588 posts

Posted on 1/5/24 at 4:02 pm to baldona

quote:
...employee contributions as employer contributions are capped right?

Employer contributions are capped at 25% but you will have to do it for everyone eligible.

You can defer up to $23,000 + catch up over age 50.

I don't think it would flag an audit - this happens all the time.

If you do a 401k, look at a Safe Harbor plan so you can get around testing. If you don't the odds are you'll be getting taxable refunds every year and not get the full benefit out of it (the headache and the expense).

Another tip, an auto-enroll feature is worth $500 in tax credits for 3 years.

If you go down this road and it still doesn't work for you, that SIMPLE that was mentioned may be your best best.

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