401(k) for small business in Columbia, IL. Initiating a 401(k) plan for your small business in Columbia, IL provides numerous benefits to both you and the people that work for you, helping businesses stand out and provide a more secure to their employees. In addition to offering more benefits than competitors, providing a 401(k) plan can also help both businesses and employees reduce their tax liability. However, some business owners might not be confident they want to move forward because of the time involved in setting up and maintaining a plan, as well as the intricate web of regulations, laws, and investment options available.
At Correct Capital Wealth Management, our Columbia, IL financial advisors and retirement consultants help companies of all sizes offer 401(k) plans that fit what their business needs and what their employees want. We do most of the work for you while you focus on making your business thrive. Speak to a Correct Capital team member today at 877-930-4015 or contact us online to get started with creating a 401(k) for your small business in Columbia, IL.
Benefits of Setting Up a 401(k) for Your Small Columbia, IL Business
Establishing and operating a 401(k) for a small business in Columbia, IL has numerous benefits, for you, your workers, and your business goals alike:
- Attract and keep great talent — Providing a 401(k) plan can be a valuable tool for recruiting and retaining accomplished talent, especially in a competitive Columbia, IL job market. Some employees will even quit their job over a 401(k), and offering one can help differentiate your business from competitors, especially if they are offered to people beyond the highest earners.
- Tax benefits — Both businesses and employees can benefit from tax advantages with a 401(k) plan. Matching contributions employers make are tax deductible up to the annual corporate tax deduction limit on employer contributions, as laid out in section 404 of the Internal Revenue Code. The federal government also offers tax credits for first-time 401(k) plans and offering automatic enrollment. Employees enjoy tax-deferred contributions and potentially reduce their taxable income.
- Increased employee retirement savings — A retirement account allows employees to save for retirement through automatic contributions deducted from their paychecks. Greater financial security eventually leads to more productivity.
- Decreased liability — Employers owe a fiduciary responsibility to their employees when they provide 401(k) plans, which involves a a deep level of investment comprehension and responsibilities. If you work with an ERISA 3(38) Fiduciary provider to assist you with your small business's 401(k), much of that fiduciary duty will be placed on them.
- Simple administration — When you parter with a 3(16) administrator to administer your small business 401(k) plan, they'll handle the vast majority of employee education, compliance, and administrative responsibilities on your behalf, so you can enjoy the rewards of offering a plan without much nuisance. Furthermore, advisors can help with 401(k) payroll integration for further simplicity. If an employee takes a new job elsewhere, they can simply rollover their 401(k) to a new retirement account without much hassle to you.
Types of 401(k) Plans For Your Small Business in Columbia, IL
Depending on your industry, your "small business" may have up to 1,500 employees, or it may just be yourself. However many employees you have, there is a 401(k) plan that will work for you:
401(k) Plans
In any 401(k) plan, employees can contribute through money taken out of their paychecks. Most 401(k)s have a wide range of investments that may include mutual funds, index funds, bonds, and company stock. Employers can make matching contributions as an additional benefit to employees. Most 401(k) plans must adhere to strict nondiscrimination requirements, and perform yearly tests to ensure the plan doesn't favor highly compensated employees. The IRS mandates contribution limits each year; in 2023 that is $22,500, unless you are 50 or older, in which case you can deposit an additional $7,500 as a catch-up contribution.
Columbia, IL employers with multiple employees have a few different considerations to make when setting up their 401(k) plan:
- Traditional vs. Roth 401(k) Deferrals — Contributions made with a traditional deferral are taxed differently than with a Roth deferral. With a traditional deferral, contributions are tax-deferred, meaning the contributions are made before taxes are taken out, and the employee can then deduct the amount contributed from their taxable income. Taxes are paid when the money is withdrawn.
With Roth deferrals, contributions are made with after-tax dollars, meaning the money grows tax-free and there are no taxes when the money's withdrawn, as long as the plan participant has been contributing for at least five years and is 59-½ years old when the money is taken out. Roth 401(k)s are becoming more popular as they allow employees to diversify their tax exposure in retirement.
- Safe Harbor Provision — If you opt for this provision, as an employer you would be obligated to make contributions that are fully vested when made. To meet Safe Harbor requirements, you have four options:
- In a non-elective contribution, an employer must contribute 3% of each eligible employee's compensation to the plan, regardless of whether the employee chooses to themselves.
- With matching contributions, the employer must match 100% of each eligible employee's contributions up to 3% of their compensation, plus an additional 50% match on the next 2% of their compensation.
- Enhanced Safe Harbor plans provide a 100% employer match on up to 4% of an employee's compensation.
- In a Qualified Automatic Contribution Arrangement (QACA), employees are automatically enrolled in the plan and have a portion of their pay contributed to the plan unless they decide not to. The automatic contribution rate starts at 3% and increases by 1% each year until it reaches a maximum of 6%, unless the employee elects a different contribution rate.
Because you are required to make contributions, your business would not be subject to nondiscrimination testing.
Solo or Individual 401(k) Plan
Solo and Individual 401(k) plans are intended for people who are self-employed, or a business where the only employee is a spouse. Contributions can be deducted from taxable income and gains grow tax-deferred until withdrawn. This type of retirement account allows individuals to make contributions both as an employer and as an employee, providing higher contribution limits than many other individual-based retirement plans. Unlike other 401(k) plans, individual 401(k)s do not require annual filings with the IRS unless the account balance is more than $250,000.
What plan works best for your and your employees depends on your business and your and your employees' needs. If you're thinking of opening a 401(k) plan for your small Columbia, IL business, make an appointment with a member of our advisor team today to find out more about the benefits and options available to you.
How a Financial Advisor Can Help Your Columbia, IL Small Business With Your 401(k) Plans
Even considering the great things a 401(k) plan can do for a small business, some Columbia, IL employers might still be cautious, as managing a 401(k) plan is complex and time-consuming. That’s where a financial advisor can help. Here are some ways that a financial advisor can help make your life easier in regards to your small business's 401(k) plan:
- Plan design — A few quick internet searches can't come close to providing the same degree of skill and experience as a professional retirement consultant. Financial advisors can work with small business owners to design a 401(k) plan meant expressly to benefit them. They can help choose the plan that works best for you, set up contribution and matching formulas, and establish eligibility requirements.
- Initiating and operating a plan — There are specific steps you must take when establishing your small business 401(k). You must:
- Adopt a written plan document
- Arrange a trust fund for plan assets
- Establish a record keeping system
- Provide plan information to eligible employees
A financial advisory firm can do all of that for you, and handle the operation and annual reviews of your 401(k).
- Advertising your 401(k) plan to prospective employees — The phrase "401(k)" might appear on a job ad in a list of benefits, but many in the job market don't fully understand what a 401(k) can do for them. We can bridge the phrase "401(k)" to definite images of a more secure retirement, with a clear road map of how to get there.
- Investment selection — Financial advisors who are an Accredited Investment Fiduciary® (AIF®) and are experienced with portfolio management will be able to provide market insight, as well as work within investment concepts such as diversification, risk tolerance, and rebalancing to optimally position employees' savings for further growth.
- Employee education — The more an employee understands their 401(k) plan, the more it will benefit them. At Correct Capital, we offer both group classes and one-on-one counseling sessions with our small business clients' employees so feel good about with how their money is being held and invested.
- Compliance — 401(k) plans have different rules and contribution limits. Not following the rules correctly can lead to harsh fines. A financial advisor can help to ensure your recordkeeper and plan administrator do not accidentally fail to comply with a requirement.
- Fiduciary responsibility — As a plan sponsor, small business owners have a fiduciary responsibility to act with diligence, prudence, and care. We are morally and legally bound to do what's in your best interest, and in the best interest of your employees and their retirement accounts.
A financial advisor can provide considerable value to Columbia, IL small business owners who are looking to establish a 401(k) plan. By consulting with a financial advisor, small business owners can provide a valuable benefit to their employees while also managing risk and ensuring the plan’s long-term success.
Call Correct Capital to Set Up a 401(k) For Your Small Business in Columbia, IL
If you own a small business in Columbia, IL, you want to focus on what you do best and what you're passionate about – not being bogged down by administrative tasks you may not have the time, knowledge, or interest to manage. As a Registered Investment Advisor with CERTIFIED FINANCIAL PLANNER® professionals, Correct Capital can both help position your and your employees' money for growth while giving you peace of mind that your small business's 401(k) plan is being operated efficiently and correctly. To start setting up a 401(k) for your small Columbia, IL business today, call Correct Capital at 877-930-4015 or contact us online.
