Outdoors Meeting

Maximizing retirement savings in a pass-through business entity is, for some, reason alone to start a company. For example, in 2021:

  • The maximum you can contribute to a qualified retirement plan is $58,000. With a cash balance plan, you may be able to contribute and save even more. 

  • $154,000 in W-2 salary from your S Corporation is the magic number for maximizing your 401k. Increases above this level doesn't increase the amount you can save. 

  • $232,000 in W-2 income from your S Corp is the minimum salary for a max SEP IRA contribution.

  • $303,000 from your small business or K-1 partnership income from your Schedule E as reported on your individual tax return is the magic number for maximizing your SEP IRA contribution. 

  • Earned income from a Schedule C sole proprietor is net profit minus 50% of your self-employment (SE) tax minus your contribution. 401k or SEP contributions do not reduce SE tax.

  • Solo 401k max is computed by taking $19,500 employee (you) contribution, plus 25% of your W-2 or earned income (as adjusted).as an employer contribution.

  • SEP IRA max is computed by taking 25% of your W-2 or earned income (as adjusted).

  • Max SIMPLE 401k is basically $13,500 plus 3% of your W-2 or earned income (as adjusted). Don’t spend too much time thinking about SIMPLE 401k plans.

  • An additional $6,500 can be contributed for catch-up contributions if you are 50 years old or older.

Maximizing Retirement
Savings