401k vs other tax breaks

[Perez Med LLC]

I have an LLC with S Corp. tax provisions. I’m looking for ways to invest my money. I looked into a 401(k), but it’s pretty expensive to open and maintain (monthly/yearly fees) with respect to how much our business makes. Are there other ways to invest our money that will lower our taxable income or produce tax benefits?

[PoojaT27]

Yes there are a few other options for retirement accounts for S corp shareholders. From your post, I can say that you have already looked into 401(k) plans. Below you will find a list of some other options:

1. SEP IRA - The SEP IRA plan is easy to establish and has low maintenance costs. However, if you have employees, you are required to contribute the same percentage to their account as you do for yours. 

In 2024, employers can contribute up to 25% of wages or $69,000, whichever is less. You can choose to make pre-tax or post-tax contributions. If the contributions are pre-tax, you can take a deduction for the contribution on your tax return. 

SEP Plan FAQs 

SEP IRA contributions are made solely by the employer and aren’t mandatory every year. This allows for more flexibility in managing cash flow. Moreover, contributions can be made up until the tax filing deadline, including extensions, providing additional time for financial planning.

2. SIMPLE IRA - SIMPLE IRA is also a good choice for small business owners with 100 or less employees. It is easy to set up and maintenance costs are low. 

In 2024, employees may contribute up to $16,000, or $19,500 for those aged 50 and older. Employers are required to make contributions to all eligible employees’ SIMPLE IRAs, either through matching or nonelective contributions. As a business owner, you can take a deduction of the contributions on your tax return. 

SIMPLE PLAN FAQs 

3. Traditional IRA - Opening and funding a Traditional IRA is accessible to anyone who has earned income, irrespective of employment status.

In 2024, individuals can contribute up to $7,000 or $8,000 for those aged 50 and older. The contributions are tax deductible depending on certain factors. 

4. ROTH IRA - Small-business owners are eligible to open and fund Roth IRAs provided they meet the income thresholds  set by the IRS.

In 2024, individuals can contribute up to $7,000 or $8,000 for those aged 50 and older.

The tax benefit lies in the fact that withdrawals including earnings are tax free since the contributions are made with post-tax dollars.

Traditional and ROTH IRAs 

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