Best small business retirement account contribution rate for President/ owners?

SEPs would be a percentage for all participants. So if the $25k is 25% of your comp then you certainly don't want to do that.

You will likely need to swap to a 401(k) in order to hit your $ targets. It will probably need to a what is referred to as a Safe Harbor plan in order for you to hit similar targets on contribution dollars if the employees are not going to defer at high rates.

If your targets are lower then you might be able to do a SIMPLE.

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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.

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

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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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Employer contributions are 25% of pre tax pay though right?

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Yes, you (the business) want to deduct them.

I had a SEP back in the day and my tax lady said it was only of the W-2

I do know the SIMPLE match is only 3%. There's some other silly rule I've never seen anyone use not worth explaining, but it's lower.

Yeah, you got the math right. Other option is to fire everybody that makes it to three years.

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You can’t make a SEP contribution based on the owner distributions. It can only be based on net earnings from self employment as defined in Publication 560 Chapter 1.

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Sorry, poor terminology. My understanding is it’s 25% of net earnings. My point with the distributions is that would be included in the net earnings. Or a good indication there of.

What I’m trying to say, is that adding an employee of 3 years reduces an employed owners ability to contribute to their retirement unless major changes are made?

I am being vague, I was trying to be simplistic. My understanding is that Sep contributions also are considered net earnings.

I’ll need to look further into my calculations, you’ve certainly brought up some valid points and suggestions. My numbers are simply to provide comparable income to retirement contribution limits.

But yes I’ve been doing over $30,000 which is beyond what my foreseeable future will allow?

ETA: there’s no reason this crap shouldn’t be in a spread sheet. Put anything unknown into its own and either allowed or not allowed and revisit yearly. Fricking ridiculous

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ETA: there’s no reason this crap shouldn’t be in a spread sheet. Put anything unknown into its own and either allowed or not allowed and revisit yearly. Fricking ridiculous

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Couldn’t agree with this more.

It should be as simple as “take Line N income, multiply by X%, and that’s your SEP deduction.”

The idea you have to read multiple form instructions and publications to figure it out is fricking insane. Net income from self employment is needed for SEP, but isn’t defined in SEP publication.

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In your $100k example you could actually contribute more to a 401k than you could to a SEP. the employee could contribute $23k or $30,500 if 50+. Employer could also make contributions as a percentage of income for employees. You could make it something like 10% and put more into 401k than you are into the SEP. You could also just keep your SEP maxed out and do the same for your employee.

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Good stuff. I do a $1,000 transfer monthly and then look everything over with my CPA before filing to determine my final transfer. So I’m just trying to remember now all my rules and limitations. I don’t think there’s any reason for me to continue my SEP and frankly shouldn’t have done it this year for the reasons you pointed out. Thank you.

Given that, I’m going to run some numbers you can do a 401(k) and Roth 401(k) at the same time. Again you’d think there’d be a damn spreadsheet for this….but if I can reasonably hire someone for what I pay myself, then why would I W-2 myself more and take fewer distributions just for retirement fund ability?

Seems like maybe I should offer a 7-10% employer match and do a personal contribution in the 401(k) up to the employer match, and then maximize the employee contribution to the limit in the Roth? The way I see it is the Roth is coming from my ‘distributions’ basically so somewhat lower taxes, additionally greatly reducing my tax bases at retirement potentially?

Another note, if personal contributions to a 401k are maxed at $23,500 how do you hit the maximum of $66,000 allowed with combined employer contributions? How do you get the missing $19,000 ($66,000-($23,500x2))? I’m missing something I know?

ETA: Finally found this online, so I can contribute after tax? I guess you get tax free growth, is there any other reason to do this into a retirement account?

Depending on your plan, you may be able to contribute up to the total employee and employer contribution limit for the year, provided your existing employee and employer contributions do not exceed the limit. For example, if you were under 50 and contributing $23,000 and your employer was contributing $20,000 in 2024, you could contribute up to an additional $26,000 as after-tax contributions to bring your total to $69,000. "