The IRS recognized that an S Corporation can sponsor a solo 401(k), also called an individual 401(k). The caveat is that there must be no full-time common law employees and you and any other owner must have at least 2% of the outstanding company stock.
Can an S Corp Have a 401(k) Plan? FAQs
Yes, an S corporation can offer its employees a 401(k) plan in order to provide long-term savings and financial security for employees.
The process for setting up a 401(k) plan for an S corporation includes establishing the plan according to IRS guidelines, selecting investments that are appropriate for the type of business, and ensuring all required documents are filed with the IRS.
Yes, an S corporation may need to take into consideration additional filing requirements such as Form 5500-SF in order to comply with IRS regulations for their 401(k) plan.
Offering a 401(k) plan can provide certain tax advantages for S corporations, including deductions from taxable income and potential credits for startup costs associated with setting up the plan.
Yes, according to IRS rules, the maximum amount an employee can contribute to a 401(k) plan in 2021 is $19,500. Employees who are age 50 or older can make additional catch-up contributions of up to $6,500.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
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