The average age of retirement is rising among American taxpayers, which means more and more workers are looking for retirement planning services and advice.
Tax preparers can serve their small business clients in a unique way by providing information and suggestions about the retirement plans available to them to offer to their employees.
In a recent webinar, instructor Jake Linney, CPC, CPFA, teaches about the variety of retirement packages small employers can offer their employees with minimal administrative burdens.
Below, you’ll find a few of the top questions from the webinar and their accompanying answers. If you choose to attend the on-demand version of this webinar, you’ll have access to the full recording and the entire list of Q&As.
Q: One of my clients is an S corporation with employees. However, all the employees, with the exception of the owner shareholder, work fewer than 500 hours per year. Can a solo 401(k) be set up only for the benefit of the owner shareholder?
A: Yes, a solo 401(k) plan can be established with a one-year-of-service eligibility condition. No non-owner employees would be eligible in this case.
Q: Is the match and employee contribution only on wages for services (not calculated on fringe benefits or other additions such as auto, etc.)?
A: For a 401(k) plan, it will depend on the plan’s definition of compensation. In general, taxable fringe benefits are included in the definition of compensation as are pre-tax 401(k) contributions and §125 contributions.
Q: Can you verify there is no company match or deferral for an S corporation that adds health insurance for a greater-than-2% shareholder?
A: The S corporation owner’s health insurance is included in their Form W-2 and counted as compensation for a 401(k) plan.
Q: Can a C corporation set up a retirement plan to only benefit the owners if there are other employees?
A: The C corporation cannot set up a retirement plan only for the benefit of the owner/employee if other employees satisfy the age and service requirements of the plan; they need to be included as well.
To learn more about retirement plans for small employers, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to join our completely free 30-day trial, visit natptax.com/explore.
Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.