Simple IRA
Here is the situation. We have a business that is establishing a Simple IRA plan. A few questions.
1. If there are employees can the business owners (two of them) just make a one time lump sum annual $16,500 contribution to the Simple or do they have to run it monthly through payroll.
2. There are two owners, husband and wife. The wife will be added to payroll. Could she just run 1 annual payroll for herself for simplicity to get the max deferral and have her husband pay in monthly.
3. Does the above depend on whether or not we do 2% contribution or 3% match?
4. Does above depend on if employees defer or not?
5. If we choose the match and all employees waive as they do not make much money does this put our plan in jeopardy of disqualification?
The accountant is giving us conflicting information based on our research and we would like the IRS answer/clarification to this.
Thanks!
Permalink Submitted by William Tuttle on Sun, 2021-01-17 03:31
Employee deferrals to employer retirement plans can not be made by lump sum at the beginning of the year like IRA contributions. They must be contributed from compensation to the degree it has been earned. How this can be accomplished depends on if the owners are self-employed (partnership or QJV) or 2% shareholder-employee’s of an S-Corp.
If self-employed, employee deferrals can only come from net self-employed earnings (Form SE Line 4) as they are received.
If an S-Corp 2% shareholder-employee, deferrals must be deducted from payroll not already received.
A spouse can not just “be added to payroll.” They must be paid a fair market value (FMV) wage for business necessary tasks. Employee deferrals can only come from compensation for services already performed. Owners and/or spouses have some flexibility with payroll, but an annual pay would have to be at the end of the year.
No.
No.
No.