Part 3: Beyond Wages — A Smarter Retirement Strategy for S-Corp Owners
Over the last two posts, we looked at how S-Corp wages affect your Social Security benefits, and what happens if you invest your payroll tax savings instead. But those are just two pieces of a much bigger puzzle.
For business owners approaching retirement, your compensation strategy does more than impact today’s tax bill—it shapes your future income, wealth, and flexibility. Here’s how to think bigger.
1. Cash Balance Plans: Supercharging Your Retirement Contributions
Once you’re maxing out your 401(k), a cash balance plan becomes one of the most powerful retirement tools available—especially for high-income owners in their 50s or 60s.
But here’s the catch:
Cash balance plan contributions are tied to wages. If your S-Corp salary is too low, you can’t fund the plan—even if your business is generating far more income.
Example:
- $60K wage = limited 401(k) + no cash balance contribution
- $168K wage = full 401(k) + $200K+ in potential cash balance contributions
Structured right, this can reduce your taxable income and turbocharge retirement savings in the years you need it most.
2. Strategic Wage Design: Finding the Sweet Spot
There’s no magic number—but there is a thoughtful range.
We help clients evaluate wages that:
- Support their lifestyle
- Satisfy “reasonable compensation” IRS rules
- Maximize Social Security where it matters
- Enable higher retirement plan contributions
- Still leave room for S-Corp distributions and tax savings
The result? A smart mix of tax efficiency and long-term planning leverage.
3. Coordinated Planning with Your CPA and Financial Advisor
This is where it pays to have a team. Too often, S-Corp wages are set based on one goal: minimizing tax. That’s short-sighted.
A better approach is collaborative:
- Your CPA ensures tax compliance and optimization
- Your advisor builds the retirement strategy, cash flow models, and investment plans
- Together, we evaluate tradeoffs between current tax savings and future financial strength
If your advisor isn’t having this conversation with your CPA, it might be time to find one who will.
4. Bonus Strategies: Making the Most of Your S-Corp Setup
Here are a few planning ideas you might not have considered:
- Put your spouse on payroll: If they’re active in the business, this can double your household’s retirement contributions.
- Legacy planning through qualified accounts: Leverage tax-deferred growth and efficient transfers.
- Use distributions strategically: Fund brokerage accounts, Roth conversions, or insurance outside the retirement system.
Final Thoughts: Plan with Purpose
Your wage isn’t just a number on a W-2—it’s a lever that controls taxes, Social Security, retirement funding, and long-term wealth. Whether you’re in your 40s or early 60s, the earlier we coordinate this strategy, the more flexibility and financial strength you’ll have down the road.
If you’re a business owner paying yourself through an S-Corp, let’s build a plan that works harder than just “saving taxes.”
