Just hit 5K per month, quit my part time job to focus on school and the company, Finalized my LLC, Hired someone to make our company a Logo and got my products into 4 new barbershops. 20 Year Old Entrepreneur and I am starting to see why Entrepreneurship Is so addicting.

There are things called Individual 401(k)s which you can setup if you are an employee in your company, but it involves a bit of setup and administration. It's been a while since we setup an Individual 401(k) for our S-Corp, but from what I remember:

  1. You have to be a corporation with shareholders, not a DBA or (I believe) LLC.

  2. The owner and/or spouse are the only shareholders.

  3. Anyone who participates in the 401(k) must be employees on payroll, meaning people the company is paying payroll tax on.

  4. You probably want (maybe must have?) the plan managed through a company like Charles Schwab or T. Rowe Price. They handle a lot of the setup and initial filings.

  5. You need someone at your company to be the plan administrator. They are the one responsible for disbursing the monthly employee contribution (and possible employer match).

  6. There is additional payroll and W-2 reporting with this plan, but any bookkeeping program will have good support for this.

  7. Once the plan's assets exceed $250,000 you need to file additional paperwork with the IRS every year.

So it's a lot more work to setup and administer than a ROTH IRA or SEP, both of which are an individual plan, not an employer plan. BUT, the nice thing about the 401(k) is that you can stash away a lot more. ROTH IRAs max out at, what, $5k per year, I think?

But with 401(k) the employee can contribute up to something like $16,500 per year. Also, you can have an employer match that is the minimum of something like $50,000 or the employee's salary. So if you have a business with a husband and wife as owners they could, feasibly, put away six figures per year into a tax-deferred retirement account, whereas with an IRA that would max out at $10k per year.

Also, the 401(k) contributions are tax deductible regardless of income, whereas the deductibility of IRA contributions phase out as your income goes up.

But unless you have joint income in excess of, say, $200,000, the best (and easiest) thing to do is max out the ROTH IRAs, as those grow tax free.

/r/Entrepreneur Thread