Simple IRA S-Corp
I have an individually owned S-Corp with one owner that does not run payroll. Can I still contribute to a Simple IRA? Or is running payroll a requirement?
I have an individually owned S-Corp with one owner that does not run payroll. Can I still contribute to a Simple IRA? Or is running payroll a requirement?
Permalink Submitted by Alan - IRA critic on Thu, 2022-03-17 18:38
Payroll and a W-2 must be generated since an S Corp owner can only make SIMPLE IRA contributions from W-2 earnings. There is also a separate requirement that a reasonable salary be paid to the S Corp owner for service performed.
Permalink Submitted by William Tuttle on Thu, 2022-03-17 19:57
The OP indicates that no payroll is being run. As pointed out by Alan an S-Corp 2% shareholder employee must be paid reasonable W-2 compensation.
There is IRS guidance and court rulings on what constitutes reasonable salary. They have both held that the single most important factor in determining reasonable compensation, is what the 2% S-Corp shareholder-employee would receive if employed as a W-2 employee of another business with their knowledge, skills and experience.
Note: If this is for the 2021 tax year, it will be a real mess to clean up. There will be penalties for late filing of form W-2, payroll tax forms, late payroll tax payments, etc…
It is too late for 2021 W-2 payroll to be the basis for employer retirement plan contributions.
Also, it would be too late to adopt a SIMPLE IRA for the 2021 tax year.
Not to mention, a SIMPLE IRA is almost never the optimal choice for an owner-only employer retirement plan.