S-Corp SEP, SIMPLE, traditional ira, roth ira, and 401(K)
As a small business owner — especially if you’re a more-than-2% shareholder in an S-corporation — the world of retirement planning can feel overwhelming. Because of this, each plan has different rules for contributions, timing, deductibility, and tax reporting. Let’s break down the major options you may be considering: SEP IRA, SIMPLE IRA, Traditional IRA, Roth IRA, and Solo 401(k). While this article will focus on the s-corporation owner, these options are available to all business owners, the treatment for W2 will change for sole proprietors as you aren’t an employee of your business. This article does not go into the details for employees of the business and how they would be included in each plan type. Please consult your investment advisor for full details on each plan type and investment options.
Understanding Each Retirement Option
SEP IRA (Simplified Employee Pension)
- Who contributes? Employer (the S-corp) only.
- How much? Up to 25% of W-2 wages, capped at $69,000 (2024).
- Deadline: Employer contributions can be made up to the S-corp tax return deadline (March 15, or September 15 if extended).
- Tax effect: Deductible by the S-corp, not taxable to you personally until distribution.
- W-2 Impact: Box 13 (“Retirement Plan”) must be checked. Contributions are not reported as wages.
SIMPLE IRA
- Who contributes? Both employee and employer.
- How much? Employee deferrals up to $16,000 (plus $3,500 catch-up if age 50+). Employer must match up to 3% or provide a 2% nonelective contribution.
- Deadline:
- Employee deferrals: within 30 days after month-end of payroll withholding.
- Employer match/nonelective: by S-corp tax return deadline (including extensions).
- Tax effect: Deferrals reduce taxable W-2 wages. Employer match deductible by the S-corp.
- W-2 Impact: Deferrals reduce Box 1 wages and Box 13 is checked. Employer match does not show in wages.
Traditional IRA
- Who contributes? Individual personally.
- How much? $7,000 (plus $1,000 catch-up if age 50+).
- Deadline: April 15 of the following year (no extensions).
- Tax effect: Deductible if AGI is within limits and you are not covered by another workplace plan. If you are covered (Box 13 on W-2 checked), deductibility may phase out.
- W-2 Impact: Not reported on W-2. Deduction is claimed on the individual’s Form 1040, Schedule 1.
Roth IRA
- Who contributes? Individual personally.
- How much? $7,000 (plus $1,000 catch-up if 50+).
- Deadline: April 15 of the following year (no extensions).
- Tax effect: Contributions are not deductible, but qualified withdrawals in retirement are tax-free.
- Eligibility: Phases out at higher incomes (2024: $146,000–$161,000 for single; $230,000–$240,000 for married filing jointly).
- W-2 Impact: Not reported on W-2. Contributions are personal and tracked separately.
Solo 401(k) (a.k.a. Individual 401(k))
- Who contributes? Both employee and employer (for owner-only businesses).
- How much?
- Employee elective deferrals up to $23,000 ($30,500 if 50+).
- Employer profit-sharing up to 25% of W-2 wages.
- Total cap: $69,000 (or $76,500 with catch-up).
- Deadline:
- Plan must be established by December 31 of the year.
- Employee deferrals: must be elected by December 31, funded promptly after payroll.
- Employer profit-sharing: due by S-corp return deadline (with extensions).
- Tax effect: Employee deferrals reduce taxable W-2 wages; employer contributions deductible by the S-corp.
- W-2 Impact: Deferrals reduce Box 1 wages and Box 13 is checked. Employer profit-sharing does not appear on the W-2.
Table: Contribution Limits, Deadlines, and W-2 Reporting (2024*)
| Plan | Contributor | Limit (2024) | Deadline | Deductible? | W-2 Impact |
|---|---|---|---|---|---|
| SEP IRA | Employer | 25% of W-2, up to $69,000 | S-corp return due date including extensions | Yes (S-corp) | Box 13 checked; not in wages |
| SIMPLE IRA – Employee | Employee | $16,000 + $3,500 catch-up | 30 days after month-end | Yes (pre-tax) | Reduces Box 1; Box 13 checked |
| SIMPLE IRA – Employer | Employer | 3% match or 2% non- elective | S-corp return due date | Yes (S-corp) | Not in wages |
| Traditional IRA | Individual | $7,000 + $1,000 catch-up | April 15, no extensions | Maybe (depends on AGI + coverage) | Not on W-2 |
| Roth IRA | Individual | $7,000 + $1,000 catch-up | April 15, no extensions | No tax-free with-drawals | Not on W-2 |
| Solo 401(k) | Both | $23,000 deferral + 25% W-2 up to $69,000 ($76,500 w/catch-up) | Dec 31 setup; contributions by deadlines | Yes | Deferrals reduce Box 1; Box 13 checked |
*Table uses 2024 contribution limits, some are adjusted for inflation annually, others are not. Catch up contributions are currently for individuals 50 years of age or greater. Please check with your tax professional for updated limits.