What are people recommending if you have an S Corp to minimize tax burden and continue to invest in real-estate.
SEP IRA
Roth IRA
401K
Self directed IRA / 401k
You don't need S-corp for a Roth IRA. Anyone can open them and make contribution. Contribution to Roth IRA are not tax deductible unlike Traditional IRA.
Roth IRA also has AGI limitation.
SEP and 401k are both possibilities for S-Corp to reduce tax burden.
Max deferral under 401k for 2018 was 18500 plus 6000 in 50 or older. People generally attach 401k with profit sharing plan to get deferral up to 55k. 401k alone is only 18500.
SEP, you can contribute up to 55k if your earned income is high enough.
There goes a detail analysis to determine what is best for you. If you have not established the 401k plan for 2018, you cannot do it now.
Sep can be established and contributed up to extension deadline.
As you can see, you need to talk to professional to determine what is best for you.
What are people recommending if you have an S Corp to minimize tax burden and continue to invest in real-estate.
SEP IRA
Roth IRA
401K
Self directed IRA / 401k
You don't need S-corp for a Roth IRA. Anyone can open them and make contribution. Contribution to Roth IRA are not tax deductible unlike Traditional IRA.
Roth IRA also has AGI limitation.
SEP and 401k are both possibilities for S-Corp to reduce tax burden.
Max deferral under 401k for 2018 was 18500 plus 6000 in 50 or older. People generally attach 401k with profit sharing plan to get deferral up to 55k. 401k alone is only 18500.
SEP, you can contribute up to 55k if your earned income is high enough.
There goes a detail analysis to determine what is best for you. If you have not established the 401k plan for 2018, you cannot do it now.
Sep can be established and contributed up to extension deadline.
As you can see, you need to talk to professional to determine what is best for you.
1. Ashish is correct that a 401k profit sharing plan allows for the highest contribution limit of the defined contribution options (IRA, SEP IRA, 401k, etc.).
2. Of course, if you have employees you will need to consider the eligibility rules, testing, etc. which leads many to offer a Safe Harbor 401k plan.
3. If you are self-employed with no full-time employees (i.e. working 1000 hours or more per year) you can set up a one-participant plan (e.g. Solo 401k) which is not subject to the testing requirements (and if your spouse is working in the business with you, your spouse can also participate and it's still considered a "one-participant" plan).
4. You could then make contributions to the Solo 401k from your self-employment income (i.e. w-2 income when your business is taxed as an S-corporation).
5. If your plan allows for it, you can make pre-tax, Roth (or even additional voluntary after-tax) contributions.
6. Contributions can be made as both employee and employer contributions (since you wear both hats):
The employee contribution limit for 2019 is 100% of your w-2 wages up to $19,000 (or an additional $6,000 if you are 50 or older) provided that you are not making employee contributions to another plan (e.g. if you have a day job with a 401k plan). Note: These contributions may be made on a pre-tax or Roth (after-tax) basis.
The employer contribution limit is 25% of your w-2 wages. All employer contributions are pre-tax.
The overall limit for 2019 is $56,000 (or $62,000 if you are 50 or older).
7. The employee contributions can either be coordinated through your payroll provider and deferred with each paycheck or made separately (e.g. lump sum) directly to the applicable Solo 401k sub-account (pre-tax or Roth).
8. No taxes or fees are withheld when you make the contributions. In fact, if you make the contributions on a pre-tax basis this will serve to reduce your taxable income.
9. Moreover, when you invest your 401k funds in real estate (e.g. downpayment to purchase real estate with non-recourse financing), this will also be done on a tax-deferred basis (or potentially tax-free if done via a Roth Solo 401k) as you would be investing your funds within your 401k plan - instead of investing in mutual funds or stocks you are simply investing in a different type of asset: namely real estate.
10. While the deadline to set up a Solo 401k for 2018 has passed (you would have had to adopted the plan by 12/31/2018), you have until your tax return deadline to set up a SEP IRA for 2018 and still make the profit sharing contribution amount (i.e. 25% of your w-2 wages for 2018 from your S-corporation).
Flipper/Rehabber · Atlanta, GA · Member since 2016 · 47 posts · 18 votes
7y
@George Blower I noticed you're in Southfield. Are there any REI-friendly attorneys and/or CPAs you can recommend? I'm really in need of some professionals to guide me in the areas of finances/LLC structure/asset protection etc.
I live in GA but invest in MI. Last trip I ended up in a Southfield (somewhere I had never previously heard of) hotel so that location name practically lit up on my screen when I saw your comment.
