LLC / S-Corp Owner with Employees looking for 401k options

[KGLO44]

Hi, I'm a single member LLC owner, which is taxed as an S-Corp, taking 70k W-2 and about 200k pass-through, although some years that pass-through can increase substantially. I have two employees - one is part time, 10 hours per week, the other is 25-30 hours per week. Employees are non-highly compensated. I don't believe the 10 hour per week employee would want to use any of their wages for a retirement plan. The 25 hour per week employee may be interested but I haven't discussed with them.

I want to maximize my tax deferred contributions; I am only 26 and my marginal tax rate is 42%.

I would love to find an option that allow employer match and/or profit sharing to maximize my contributions, however I do not want to substantially increase required compensation or contributions for the employees (Employee turnover is high, and it's an unskilled position mostly packing and filling orders and reading packing lists)

I also want a self directed plan that has minimal fees but I suppose that is more dependent on the provider I go with and not the type of plan.

[shERPA]

Your maximum contribution under a 401(k) or any other DC plan is $53,000, you're too young to bother with a defined benefit plan. To get to $53,000, you'll need to increase your W-2 wages, most likely to at least $140K depending on how much is contributed for the one eligible NHCE working 25 hrs per week and how much s/he earns. More wages to you is better, up to $265K.

You will have to contribute for the eligible NHCE if you want maximum contributions for yourself. You can use a vesting schedule on profit sharing contributions to get some of it back in forfeitures should the employee leave with less than 6 years.

A safe harbor option for your 401(k) is almost certainly going to be helpful, but you've missed the October 1 cutoff to use this for 2015. Recommend you work with a retirement plan consultant/administration firm to design the plan you want. Yes it will cost you some fees but you can get what you are looking for with proper design. The wrong plan design usually ends up being the most expensive option.

[jpod]

Right now you and your LLC are saving SIGNIFICANT social security and medicare taxes by paying yourself only $70K. To compare apples to apples you will have to carefully consider the extra social security and medicare taxes you will have to pay by boosting your W-2 payments.

[jpod]

And, by the way, paying yourself only $70,000 may not be kosher under the "reasonable compensation" principle, and the IRS could attempt to assess back social security and medicare taxes against your LLC. That's a different but somewhat related issue to consider.

[Lou S.]

If you have more than 3 years of pay history in the LLC but your employees don't, then maybe a SEP is for you. Especially if your employees have high turnover and rarely stick around for more than 3 years.

[KGLO44]

If you have more than 3 years of pay history in the LLC but your employees don't, then maybe a SEP is for you. Especially if your employees have high turnover and rarely stick around for more than 3 years.

I thought it was 'performed any work during 3 of previous 5 years'?

If I had an employee start in December of 2014, work through 2015, and work for part of 2016, he'd be eligible for 25% match of total 2016 wages to a SEP IRA I'd have to set up for him?

Or is that not the only SEP plan?

[austin3515]

If I had an employee start in December of 2014, work through 2015, and work for part of 2016, he'd be eligible for 25% match of total 2017 wages to a SEP IRA I'd have to set up for him

From this web-site: https://www.irs.gov/Retirement-Plans/SEP-Plan-FAQs-Participation-Requirements

Example: Your SEP plan uses the 3-of-5 eligibility rule, uses a calendar year and has no age or compensation requirements. To be eligible for a contribution for 2015, an employee must have worked for you for any length of time in any 3 years in the 5-year period from 2010 to 2014. An employee who worked for you for two months in 2010, 2013 and 2014 must share in the SEP contribution made for 2015.