Author Topic: From Sole Proprietor to S Corp - Can I apply it this year and do a 401k?  (Read 1562 times)

optionsguy

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  • I'm about to switch from sole proprietor to an s corp
  • I'm anticipating 100k profit from my business
  • It's late in the year. Will the S corp go into effect this year, or did I need to file before March 15?
  • If I pay myself a salary of 50%, I have a 50k payroll. Does that mean I can contribute $17,500 to a 401k as an employee, and 25% ($12,500) as an employer, for a total of 30k 401k contribution?
  • If that 401k part is true, does that further lower my income tax by 30k?
  • And a final, somewhat unrelated question: I teach at a university part time. If I have the university pay my corp instead of me personally, what's a reasonable salary? Could I pay myself 50%?

Mother Fussbudget

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Both business types are eligible for a 401k plan.  Ask your plan administrator/custodian.

Have you considered holding things other than stocks & bonds (i.e. real estate, mortgage notes, precious metals, etc) in your retirement account(s)?  Research self-directed IRA / RothIRA / 401k / solo 401. I posted my favorite on-line book resource on self-directed plans.  There are special rules that must be followed TO THE LETTER, but the potential for returns in the 10-15% range from real estate make these compelling.

You should also research depositing AFTER-TAX dollars into a 401k -  see this from The Mad FIentist .  Ask whatever custodian you choose if they support after-tax contributions.

optionsguy

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That's interesting. I'll look into it. I guess I was just going to do a solo 401k and put it into a vanguard target date fund.

BlueHouse

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  • I'm about to switch from sole proprietor to an s corp
  • I'm anticipating 100k profit from my business
  • It's late in the year. Will the S corp go into effect this year, or did I need to file before March 15?
  • If I pay myself a salary of 50%, I have a 50k payroll. Does that mean I can contribute $17,500 to a 401k as an employee, and 25% ($12,500) as an employer, for a total of 30k 401k contribution?
  • If that 401k part is true, does that further lower my income tax by 30k?
  • And a final, somewhat unrelated question: I teach at a university part time. If I have the university pay my corp instead of me personally, what's a reasonable salary? Could I pay myself 50%?
  Congratulations.   Yes, toe 401k part is true   You can contribute 18000 in 2015. Employer can contribute 25% of your salary. That 30k reduces your taxable wages by 30k, not your total tax bill. It is deferred income and you will pay taxes on it when you withdraw it, some years from now at ordinary income tax rates.
If the uni pays the corp, your reasonable salary is for you as a person, not for each individual job. So if you're already paying yourself 50k salary, you may decide that's reasonable salary and effectively not pay yourself any part of the teaching income, allowing you to take all of that income as a dividend and eliminating all SS & Medicare taxes on it