SEP IRA or SIMPLE IRA?

[mak101]

I own S corporation and have 2 other employees. I been investing in traditional IRA but now I think I should start big saving:) I draw 50K as W2 and after all other expenses I have another about 80-90K income in same business which I get it from K1. My other employees have 120K and 25K in W2. Whichever route I go employees salary will be adjusted.

If I go SEP route...
I can contribute
for me 35K - 25% of my total income of 120 (or 25% of my W2, which will be 12.5K)
employees 25% of each employee

If I go SIMPLE IRA
I can contribute
for me 12.5K (can I match other 3%? of 50 K or 140K?)
for both Employees 12.5K?

I think in SIMPLE I have contribute every month, in that case it is too late for 2016, but I believe SEP is fine for this year. Can I do SEP for 2016 and SIMPLE for 2017?

I appreciate any expert advise.

Thanks.

[SeattleCPA]

The match percentage is applied to your W-2...

So if your W-2 equals $50,000, you can get a $1500 Simple IRA match (3% of the $50K) and you can get a $12,500 SEP IRA match (25% of the $50K)

You are too late to do a Simple for 2016 but not to do a SEP for 2016.

You possibly don't have to cover your employees for 2016 for the SEP. Depends on how you write the plan qualifications.You will need to cover most people with a Simple.

BTW, if you're married, you can sometimes also add spouse to payroll (at least for 2017) and double up on the Simple...

P.S. You might find this article at my S corporations FAQ helpful as you develop your thinking:

http://www.scorporationsexplained.com/what-pension-plans-are-available-for-Scorporation.htm

[mak101]

Thank you very much for quick response, I still have few more questions...

1. Can I open SEP for 2016 for myself only and SIMPLE for 2017 and onward? How can I not cover my employee (for 2016)- who is been working in my company over 10 years?
2. One of my employee is my wife (25K salary), Can I still max out 12.5K from her wage?
3. Which is the best financial institute in terms of maintenance fees and investment choices - I am more interested in only low cost index fund or ift.

I appreciate your help.

Thanks.

[SeattleCPA]

Thank you very much for quick response, I still have few more questions...

1. Can I open SEP for 2016 for myself only and SIMPLE for 2017 and onward? How can I not cover my employee (for 2016)- who is been working in my company over 10 years?
2. One of my employee is my wife (25K salary), Can I still max out 12.5K from her wage?
3. Which is the best financial institute in terms of maintenance fees and investment choices - I am more interested in only low cost index fund or ift.

I appreciate your help.

Thanks.

You maybe can't exclude an employee with a SEP. Sorry. You can exclude someone because they're under age of 21, because they're covered by a collective bargaining agreement, and because they fail to meet the years of service requirement. But the "tightest" you can make the years of service requirement is requiring the person to work three of last five years.

You can going forward provide Simple to wife. The $12.5K will come out of her wages... Employer will then do another $750... the 3% match on her $25K.

We use Vanguard for our Simple-IRA. There's no charge and as you probably know, the fees are cheap.

[mak101]

Great, so in summary for 2016, I cant just do SEP for myself and too late for SIMPLE:(.
Anyway I will setup SIMPLE from this year onward, sorry I am throwing few more questions...

-do I have to deduct and deposit in SIMPLE every month equally? or can I deduct quarterly/ half yearly?
-can I still contribute in traditional ira on top of SIMPLE?
-How payroll tax calculated, 25% contribution is from employee, so lets say employee salary is 10K/month, am I suppose to deduct payroll tax on 10K or 7.5k?

Once again thanks a lot for your help.

[SeattleCPA]

This article at my S corporations FAQ should answer your questions:

http://www.scorporationsexplained.com/what-pension-plans-are-available-for-Scorporation.htm

You'll also be able to get any last questions answered by whoever provides the Simple-IRA accounts for you.

Tip: You may want to outsource your payroll to someone like Paychex if you have questions about how the payroll accounting works.

[mak101]

If my employee salary is 100k and at the end of the year I give him 20K bonus, how much should I contribute, 3% on 100k or 3% on 120k?

Thanks.