I have an S Corporation and wanted to adopt a solo 401(k) Plan – can I do this? I know there are some S Corporation restrictions regarding retirement accounts and ownership.
Frank P., NH
The IRS created the Solo 401K Plan to be a cost effective retirement solution for the self-employed or a business owner with no employees. A Solo 401K is perfect for sole proprietors, small businesses and independent contractors such as consultants. A Solo 401K plan offers the same advantages as a Self Directed IRA LLC, but without having to hire a custodian or create an LLC. A Solo 401K Plan can be adopted by any business type including an S Corporation.
S corporations are corporations that elect to pass corporate income, losses, deductions and credit through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are subject to tax at their individual income tax rates. Unlike a C Corporation, which is subject t a double level of tax, this allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income.
To qualify for S corporation status, the corporation must meet the following requirements:
- Be a domestic corporation
- Have only allowable shareholders
- including individuals, certain trust, and estates and
- may not include partnerships, corporations or non-resident alien shareholders
- Have no more than 100 shareholders
- Have one class of stock
- Not be an ineligible corporation i.e. certain financial institutions, insurance companies, and domestic international sales corporations.
The Solo 401(k) plan is a perfect retirement solution for a business owner operating a business with no employees via an S Corporation.
The Solo 401(k) Experts