Retirement Plan - Sub S Corp

[duanecpa]

Situation - Sub S corp has a single owner and 1 employee - owner would like to set aside money for retirement - the 1 employee may not participate in a retirement plan - is there a retirement plan whereby the owner of the Sub S can set aside money for retirement for this particular situation?

Thank you.

[DaveinTexas]

Not that I know of but....

Here's a snippet of what the IRS says about the Solo 401K:

"Testing in a one-participant 401(k) plan

A business owner with no common-law employees does not need to perform nondiscrimination testing for the plan, since there are no employees who could have received disparate benefits.

The no-testing advantage vanishes if the employer hires employees. No matter what the 401(k) plan is called by a plan provider, it must meet the rules of the Internal Revenue Code. If employees are hired and they meet the eligibility requirements of the plan and the Code, they must be included in the plan and their elective deferrals will be subject to nondiscrimination testing (unless the 401(k) plan is a safe harbor plan or other plan exempt from testing)."

My recommendation is to partner up with a financial advisor that can guide your clients through setting up a plan. If you will notice, the plan must be a safe harbor plan (exempt from testing). But what this really means is the following:

To avoid non-discrimination testing, your business will need to contribute to both your 401(k) account and your employees' accounts. Companies that choose a Safe Harbor plan must either:

1) Make a dollar-for-dollar matching contribution for all participating employees, on the first 4% of each employee's compensation (this is the most popular option), OR
2) Contribute 3% of the employee's compensation for each eligible employee, regardless of whether the employee chooses to participate in the plan.

I don't know of any other retirement plan that discriminates against other non owners. SIMPLE IRAs are popular too, I am thinking the employer match is only required IF the employee participates. It's a little more flexible, although the limits are not as great as the SEP and Solo.