Business owner with 15 employees. Retirement tax advantage accts?

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Planner01
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Business owner with 15 employees. Retirement tax advantage accts?

Post by Planner01 »

What account can a business owner with employees open for tax advantage purposes? BUT doesn’t want to offer to his employees. Is that a SEP IRA? Also what is the contribution limit?
fabdog
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Re: Business owner with 15 employees. Retirement tax advantage accts?

Post by fabdog »

the SEP covers all employees, but only the employer makes contributions. I don't believe there are employer plans that do what you want

Here's a chart from Vanguard that compares the options

https://investor.vanguard.com/accounts- ... comparison

Mike
Topic Author
Planner01
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Joined: Mon Dec 26, 2016 1:44 pm

Re: Business owner with 15 employees. Retirement tax advantage accts?

Post by Planner01 »

fabdog wrote: Fri Dec 03, 2021 2:23 pm the SEP covers all employees, but only the employer makes contributions. I don't believe there are employer plans that do what you want

Here's a chart from Vanguard that compares the options

https://investor.vanguard.com/accounts- ... comparison

Mike
What other option would the business owner have?
fabdog
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Re: Business owner with 15 employees. Retirement tax advantage accts?

Post by fabdog »

Personal IRA, depending on income level. HSA if a HDHP.

The option you can try is a small employer 401K, so then you can defer up to the 401 limits (plus catch up if eligible) but you have to make it available to your employees. If you want to make employer contributions/matching, you have to do so for your employees.

But you could set up a small business 401 to give yourself the 401 space... but have to include your employees

Mike
Topic Author
Planner01
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Re: Business owner with 15 employees. Retirement tax advantage accts?

Post by Planner01 »

fabdog wrote: Fri Dec 03, 2021 2:34 pm Personal IRA, depending on income level. HSA if a HDHP.

The option you can try is a small employer 401K, so then you can defer up to the 401 limits (plus catch up if eligible) but you have to make it available to your employees. If you want to make employer contributions/matching, you have to do so for your employees.

But you could set up a small business 401 to give yourself the 401 space... but have to include your employees

Mike
If you open a 401k and make it available to employees, MUST you offer a match? Or can you just contribute for yourself only?
niceguy7376
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Re: Business owner with 15 employees. Retirement tax advantage accts?

Post by niceguy7376 »

Planner01 wrote: Fri Dec 03, 2021 1:59 pm What account can a business owner with employees open for tax advantage purposes? BUT doesn’t want to offer to his employees. Is that a SEP IRA? Also what is the contribution limit?
You want a way to save money but only for you and not employees? I dont think there is a way.

If you want to offer the opportunity to offer a retirement plan but not make any employer matchings, then there is an option. But that will be dependent on a lot of factors like the salaries of Employees, how many of them will participate and such.

The most cost effective way is to offer SIMPLE IRA plan with 3% match. Very low expense overhead. You can contribute 12.5K
If you go the route of small business 401k, the employer cost will increase but so does your contribution limit (19.5K)
niceguy7376
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Re: Business owner with 15 employees. Retirement tax advantage accts?

Post by niceguy7376 »

Planner01 wrote: Fri Dec 03, 2021 2:37 pm If you open a 401k and make it available to employees, MUST you offer a match? Or can you just contribute for yourself only?
https://www.guideline.com/blog/nondiscr ... ompliance/
fabdog
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Location: Williamsburg VA

Re: Business owner with 15 employees. Retirement tax advantage accts?

Post by fabdog »

If you open a 401k and make it available to employees, MUST you offer a match? Or can you just contribute for yourself only?
If you offer the 401, you can just contribute, and interested employees as well. You do not have to offer a match, but you cannot make employer contributions just for yourself

Try these publications as well

https://institutional.vanguard.com/ngia ... loyees.pdf

https://www.irs.gov/pub/irs-pdf/p4484.pdf

as niceguy notes, the costs for the 401 plan will be higher, and you have to file an annual report (Form 5500) with the IRS

Mike
Makefile
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Re: Business owner with 15 employees. Retirement tax advantage accts?

Post by Makefile »

Planner01 wrote: Fri Dec 03, 2021 2:37 pm
fabdog wrote: Fri Dec 03, 2021 2:34 pm Personal IRA, depending on income level. HSA if a HDHP.

The option you can try is a small employer 401K, so then you can defer up to the 401 limits (plus catch up if eligible) but you have to make it available to your employees. If you want to make employer contributions/matching, you have to do so for your employees.

But you could set up a small business 401 to give yourself the 401 space... but have to include your employees

Mike
If you open a 401k and make it available to employees, MUST you offer a match? Or can you just contribute for yourself only?
You don't have to offer a match, but there is a "nondiscrimination test" the plan has to pass involving the average % being put into the plan across the employees. Someone else can elaborate on how difficult that is to do with only a few employees.

A "safe harbor 401(k)" is exempt from those tests but requires a match.
Makefile
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Re: Business owner with 15 employees. Retirement tax advantage accts?

Post by Makefile »

The optimum for the 401(k) here from employer's perspective is interesting to think about.
  • If everyone is highly compensated, there need not be any match because the plan automatically passes
  • For a company of consultants making $120,000 each plus a higher-paid owner, the plan is likely to pass anyway since employees will voluntarily contribute at high rates
  • For an owner plus a minimum wage workforce, the safe harbor variant with a 100% match up to 3% and 50% match for the next 2% is likely the lowest employer cost, since the employees are unlikely to contribute anything to be matched
  • If employee compensation is somewhere in between e.g. $60,000 each, employees are likely to take advantage of the safe harbor match and contribute up to it, raising employer cost
mrlan
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Re: Business owner with 15 employees. Retirement tax advantage accts?

Post by mrlan »

Why don’t you want to give your employees access to a 401k (or similar) just as you would like for your own retirement planning? Presumably the success of your company is built upon their contributions. It’s also a basic employee retention tool, which is extra important in these times.
Jimsad
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Re: Business owner with 15 employees. Retirement tax advantage accts?

Post by Jimsad »

Be generous
I do 401k with match also share profits with profit sharing with employees
They deserve it
Makefile
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Joined: Fri Apr 22, 2016 11:03 pm

Re: Business owner with 15 employees. Retirement tax advantage accts?

Post by Makefile »

mrlan wrote: Fri Dec 03, 2021 5:21 pm Why don’t you want to give your employees access to a 401k (or similar) just as you would like for your own retirement planning? Presumably the success of your company is built upon their contributions. It’s also a basic employee retention tool, which is extra important in these times.
I suppose we don't know the full story here. Perhaps the employees are part-time or seasonal and it's unlikely they would take advantage.
As stated a 401(k) with no match would work if it can pass the nondiscrimination tests.
If it can't, well, that's because it's deliberately designed to prevent the exact scenario of it being a big tax deduction for the owner only.
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