What retirement account type has the highest contribution limits for a single owner LLC?
One type of retirement plan that can make a lot of sense for a business owner with no employees is the Solo 401(k). You essentially wear two hats in this type of retirement plan structure, the employer and the employee.
- Employee: elective deferral contribution of up to $18,000 per year or $24,000 per year if you're over age 50.
- Employer: profit-sharing contribution of up to 25% of compensation (20% in the case of Sole Proprietor or a Schedule C Tax Payer). If your LLC is taxed as an S Corp, then this limit is 25% of your salary as the business owner (does not include K-1 distributed income).
Total employee plus employer contributions cannot exceed $54,000 in 2017. If you have a spouse who is added to the payroll, the same rules as above apply. Ultimately, you could defer up to $108,000 in 2017 between you and your spouse. Always consult with your CPA about these rules, as they can get quite tricky. Separately, I suggest choosing a Solo 401(k) provider with low annual plan expenses and low-fee investment options. Hope this helps!
Chris Cyndecki, CFP®
Most likely a solo-401(k) because you can contribute as employer and employee. They are wonderful things. You can't have any W-2 employees, but they are awesome.
I have had many small business clients and solo-401(k)s have gotten cheaper and easier to set up. I have a blog series coving SEP, SIMPLEs, and solo-401(k)s. They should have all the info you need.
The downside to the timing of your question is the deadline for opening (not contributing) the solo is 12/31. BUT you might still be able to do a SEP. The deadline for the SEP is 4/18.
My blog comes out sometime today and covers the SEP for this very reason. http://www.sonafinancial.com
Mark Struthers CFA, CFP®
Disregarding your age for the moment, the plan that allows for the highest deductible contribution is a defined benefit pension plan, but is only used in very special situations, and more so where an individual is over the age of 55 and has very few or no employees at all. In the alternative, a solo 401(k) plan may be your best answer. A little bit of research into both of these plans and one source of information that has been helpful to us in the past has been the individuals who handle retirement planning at Fidelity. To give you an extreme example, one of my newest clients is making a $250,000 deductible contribution to his defined-benefit pension plan for the calendar year 2016. Yes, this is possible, but he is already 70 years old and continues to have an unusual amount of earned income. I'm not necessarily recommending Fidelity, I'm simply telling you we had very good luck and they can help you make a determination as to whether the defined benefit pension plan would work for you and your family. Hope this helps and good luck.