SCorp and Roth IRA

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Cbstevens11
Posts: 1
Joined: Mon Feb 12, 2018 12:16 am

SCorp and Roth IRA

Post by Cbstevens11 » Mon Feb 12, 2018 12:28 am

Hi! so I do basic bookkeeping and payroll for a friend who has a SCorp. About a year ago she set up a Roth IRA with her personal bank under her name and not the businesses. She is now wanting to set it up to where her contributions are withheld from her paycheck and put in her ira from the business ... I’m not super familiar with ira’s/etc as I only have a 401k through my job ... so my question is, is this even allowed? Since the ira is in her name and has nothing to do with the company would she be able to have it held form her check like thAt or would she just need to invest the money on her own and leave the business out of it.

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Duckie
Posts: 5813
Joined: Thu Mar 08, 2007 2:55 pm

Re: SCorp and Roth IRA

Post by Duckie » Tue Feb 13, 2018 6:55 pm

Cbstevens11, welcome to the forum.
Cbstevens11 wrote:Hi! so I do basic bookkeeping and payroll for a friend who has a SCorp. About a year ago she set up a Roth IRA with her personal bank under her name and not the businesses. She is now wanting to set it up to where her contributions are withheld from her paycheck and put in her ira from the business ... I’m not super familiar with ira’s/etc as I only have a 401k through my job ... so my question is, is this even allowed?
It depends. She may be thinking about a SEP IRA or SIMPLE IRA. Those are small-business employer plans (along with the solo 401k) unlike her Roth IRA which is a personal plan. Ask her if this is what she intends. If she sets up one of those plans she could contribute a lot more to retirement than just the $5.5K to her personal Roth IRA.

jgdsss
Posts: 58
Joined: Mon May 16, 2016 11:31 pm

Re: SCorp and Roth IRA

Post by jgdsss » Tue Feb 13, 2018 8:40 pm

I'm SCorp and I do simple IRA for myself and employees. I use Vanguard, super easy. Simple IRA lets you contribute $12,500 (or 15,500 catch up). I max that out and also do a Roth with my after tax money.

Spirit Rider
Posts: 8367
Joined: Fri Mar 02, 2007 2:39 pm

Re: SCorp and Roth IRA

Post by Spirit Rider » Tue Feb 13, 2018 10:15 pm

Anyone can make contributions to a traditional or Roth IRA account by direct deposit from their payroll. This no different than sending a portion of your net payroll to more than one bank account. All you need to do is provide a routing/account number and amount/pay period to your employer.

I do not recommend this because you still have make your fund purchases after the direct deposit. Where if you set up automatic purchases at your IRA custodian from your bank account. Both happen automatically.

Additionally, does the business even have payroll processing that does this? If the OP is the "payroll processing", does the business have the ability to do fee-free direct deposits. Sounds like a bad idea all the way around.

If she was instead referring to S-Corp employer retirement plans. As pointed those options would be a one-participant 401k, SEP IRA or SIMPLE IRA.

A one-participant 401k this would allow an employee deferral (traditional or Roth) of 100% of W-2 wages up to $18.5K and an employer contribution of up to 25% of W-2 wages. With a total not to exceed $55K.

A SEP IRA which would allow an employer contribution of up to 25% of W-2 wages not to exceed $55K.

I do not recommend a SIMPLE IRA for an owner-only business. It has a lower employee deferral than a one-participant 401k (12.5K vs. $18.5K) and a lower employer contribution (3% vs. 25%) of a one-participant 401k or SEP IRA.

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