Accavallo & Company, LLC

Seizing the Opportunity: Why Your Business Should Embrace Retirement Plans Now

If your business hasn’t embraced a retirement plan yet, now might be the perfect opportunity. The current retirement plan regulations offer generous tax-deductible contribution allowances.

For instance, self-employed individuals can establish a SEP-IRA and contribute up to 20% of their self-employment income, capped at $69,000 for 2024 (up from $66,000 in 2023). If you’re an owner-employee of a corporation, you can contribute up to 25% of your salary to your retirement account, with the same $69,000 maximum. For those in the 32% federal income tax bracket, making the maximum contribution could reduce your 2024 tax bill by an impressive $22,080 (32% of $69,000).

Other Retirement Plan Options

There are several other retirement plan alternatives for small businesses, such as:

  • 401(k) plans, including solo 401(k)s for individuals.
  • Defined benefit pension plans

Depending on your circumstances, these plans might allow for larger or smaller deductible contributions compared to a SEP-IRA. For instance, in 2024, a participant can contribute up to $23,000 to a 401(k) plan, plus an additional $7,500 “catch-up” contribution for those aged 50 or above.

Be Mindful of Deadlines

Thanks to the 2019 SECURE Act, tax-advantaged qualified employee retirement plans (excluding SIMPLE-IRA plans) can now be adopted by the due date (with any extensions) of the employer’s federal income tax return for the year of adoption. The plan can then accept deductible employer contributions made by the same due date, and these contributions can be deducted on the return for the adoption year.

Note: This provision doesn’t alter the deadline for establishing a SIMPLE-IRA plan, which remains October 1 of the plan’s effective year. Moreover, the SECURE Act doesn’t override rules mandating specific plan provisions, like those governing employee elective deferral contributions in a 401(k) plan, which must be in effect before such contributions can be made.

For instance, for the 2023 tax year, the deadline to set up and contribute to a SEP-IRA for a calendar-year sole proprietorship business is October 15, 2024, if you file an extension. For the 2024 tax year, the corresponding deadline is October 15, 2025. However, to make a SIMPLE-IRA contribution for the 2023 tax year, the plan must have been set up by October 1, 2023.

While you can postpone establishing a tax-advantaged retirement plan for this year to the next (except for a SIMPLE-IRA plan), why delay? Incorporate it into your tax planning this year and kickstart your retirement savings.

At Accavallo & Company, we can offer more details on small business retirement plan options. Remember, if your business employs others, you might be required to make contributions on their behalf as well. Reach out to your tax expert at 203-925-9600.

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Sherri Fisher is a Tax Manager at Accavallo & Company, LLC.  Sherri has longstanding expertise in Trust and Estate Taxation, Eldercare, and Estate planning. Sherri appreciates the relationships she has built with estate planning attorneys and advisors, to provide a team approach to assisting her clients. Sherri also has seasoned experience in business and individual taxation and is partial to assisting start-ups in developing overall accounting and operating plans.

Prior to joining Accavallo & Company, LLC, Sherri was a manager in a large firm, servicing high net worth trust clients, business, and personal clients. She was also a Partner in a large bookkeeping firm, which specialized in cloud accounting systems for regional and national companies. Sherri led a team in assisting clients to organize their accounting systems.  She is a graduate of Florida Atlantic University with a B.S. degree in Accounting.    

Sherri’s experience includes working with companies and organizations in a variety of industries including:

  • Investment Trusts

  • DAPT and Family Investment Partnerships

  • Estate and Probate Administration

  • E-Commerce

  • Manufacturing

  • Construction

  • Real Estate Investment

  • Marketing and Service-based industries

In addition to her professional accomplishments, Sherri is an Intuit Advanced Pro Advisor, Intuit Future Firm Advisory Board member, member of the Valley WIN Network, and proudly served as past Connecticut Public School liaison for the Yale Tommy Fund for Childhood Cancer. Sherri enjoys time with her family, Cleveland sports, thrifting and gardening.