Retirement Plans – Accounting for Contributions
Regardless of which type of retirement plan you have, the accounting looks the same. The main difference in your journal entries is between contributions made for you (as the owner, not as an employee of a corporation) or for your employees. Here’s what the entries for company contributions look like under the accrual method of accounting. If you use cash accounting, your credit will be to cash and you won’t use the final paying entry.
Journal Entry: Contributions for Employees
| Date | Account & Explanation | Post Ref | Debit | Credit |
|---|---|---|---|---|
| 01/30/06 | Retirement Plan Contribution Expense | 500.00 | ||
| Retirement Plan Contributions Payable | 500.00 |
To record retirement plan benefits expense for the pay period.
Journal Entry: Contributions for Owners
| Date | Account & Explanation | Post Ref | Debit | Credit |
|---|---|---|---|---|
| 01/30/06 | Janine Smith, Withdrawals | 500.00 | ||
| Retirement Plan Contributions Payable | 500.00 |
To record owner’s retirement plan benefits for the period.
Journal Entry: Making the Contribution
| Date | Account & Explanation | Post Ref | Debit | Credit |
|---|---|---|---|---|
| 02/15/06 | Retirement Plan Contributions Payable | 1,000.00 | ||
| Cash | 1,000.00 |
To record payment made to retirement plan, check #154.
When the company makes contributions on your behalf, it doesn’t usually get an expense deduction. Instead, you take the deduction on your personal tax return (there’s a special line for this). When you’re an owner- employee in a corporation, contributions made for you count the same as for any other employee. These are the general rules; however, your personal financial situation is unique, and your accountant will know the best way to handle your pension contributions and tax deductions. Contributions made by employees will be part of the regular payroll entry, since you withhold those contributions from their paychecks.