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Author: Hear2Stay Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 14983  
Subject: S-Type Corp Retirement Plans Date: 12/16/2004 2:48 PM
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Hi Fools!

I am the sole employee of an S-Type Corporation. I am the majority shareholder (90%) and there is only one other shareholder (10%).

Right now, I personally have a Roth-IRA, but I would like to also set up a retirement plan with the corporation for myself.

Since I have an S-Type Corporation, I pay myself a low salary ($24k/year currently, but will probably raise it a bit soon) to avoid paying Social Security and Medicare taxes as much as I can (FYI I'm only 21 years old).

These are the retirement plans I know of and what I know about them:

SIMPLE-IRA
- No percentage, which is good for low salaries, up to $9k ($10K in 2005 and more for both for individuals over 50).

SEP-IRA
- 15% of salary up to $40k.

One-Person 401(k)
- 25% of salary up to $40k.
- Simplified paperwork in comparison to regular 401(k)
- The "one person" refers to companies where only the owners or owners' spouses are employees.
- You can borrow fom the account (not that I ever would).

The 401(k) looks attractive, but even if I started to pay myself $40k/year (which I would rather not when the corporation earns under $100k/year and I can easily convince the IRS that I don't deserve a large salary -- it's an internet based business that makes all of it's money off of an automated advertising system) I still would only be able to contribute $10k.

For a low salary the SIMPLE-IRA looks like a good plan, but am I missing any other options? This is all very new to me.

Does anyone have any recommendations or books/places for further reading?

Once I feel knowledgable enough, I will be talking it over with an accountant.

Thanks!
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