401 (k) for small business in Columbia, IL. Initiating a 401(k) plan for your small business in Columbia, IL can offer 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 attracting top talent, providing a 401(k) plan can also help both businesses and employees reduce their tax liability. However, some business owners may still be wary because of the time commitment, as well as the intricate web of regulations, laws, and investment opportunities available.
At Correct Capital Wealth Management, our Columbia, IL financial advisors and retirement consultants help companies of all sizes offer customized and successful 401(k) plans. We take the heavy financial lifting off your plate, so you can focus on growing your business while we focus on growing your and your employees' retirement accounts. Call Correct Capital today at 314-930-401(k) or fill out our online form to learn more about creating a 401(k) for your small business in Columbia, IL.
Should I Establish a 401(k) For My Columbia, IL Small Business?
Setting up and operating a 401(k) for a small business in Columbia, IL has numerous benefits, for you, your workers, and your business's bottom line:
- Attract and retain top employees — Providing retirement plans is an essential tool for recruiting and retaining top talent, especially if many Columbia, IL companies are hiring for the same job. Employees see a 401(k) as a valuable benefit, and offering one can help differentiate your business from competitors, especially if they are offered to people beyond the highest ranking employees.
- Tax benefits — Both employers and employees can benefit from tax advantages with a 401(k) plan. Matching contributions from employers are tax deductible up to the yearly corporate tax deduction limit on employer contributions, which is 25% of covered payroll. There are also several tax credits for first-time 401(k) plans and offering automatic enrollment. Employee contributions reduce their tax liability and their contributions grow tax free.
- Increased employee retirement savings — A 401(k) plan allows employees to feel more confident about how they'll spend their golden years. Greater financial security eventually leads to more productivity.
- Decreased liability — Employers take on a fiduciary duty to their employees when they provide retirement plans, which involves a wide range of investment understanding and obligations. If you partner with an ERISA 3(38) Fiduciary advisor to assist you with your small business's 401(k), most of that liability will go to them.
- Ease of administration — When you offer your small business 401(k) plan with a 3(16) administrator, they'll manage 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. Moreover, advisors can help integrate contributions with your payroll system for further simplicity. If an employee takes a new job elsewhere, they can simply perform a 401(k) rollover to an IRA or new 401(k) without you having to do much work.
Types of 401(k) Plans That Can Help 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. 401(k) plans are available to all businesses, regardless of how many employees they have:
401(k) Plans
In any 401(k) plan, employees can put funds into the account through money taken out of their paychecks. Most 401(k)s have many different investment opportunities. Employers can make matching contributions as an additional perk to employees. Most 401(k) plans must follow rigid 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 the limit is $30,000.
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 it is pre-tax money, lowering an employee's 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 had the account for five years and is 59-½ years old when the money is taken out. Roth 401(k)s are becoming increasingly popular as they allow plan participants to diversify their tax exposure in retirement.
- Safe Harbor Provision — If you opt for this provision, as a business owner you would be required to make fully vested contributions to your employees' plans. To meet Safe Harbor requirements, you have four possible ways to contribute:
- 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 choose to opt out or contribute a different amount. The default contribution rate starts at 3% and increases by 1% each year until it maxes out at 6%, unless the employee elects a different contribution rate.
In exchange for mandatory employer contributions, Safe Harbor plans are not 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 the money is taken out. This allows participants to save more as they can make contributions both as an employee and a businesses owner. Unlike other 401(k) plans, individual 401(k)s are not subject to annual filings with the IRS unless the account balance exceeds $250,000.
What plan works best for your and your employees depends on your business and employees. If you're interested in establishing a 401(k) plan for your small Columbia, IL business, make an appointment with a member of our team today to get started.
How a Financial Advisor Can Help Small Columbia, IL Businesses With Their 401(k) Plans
Given the great things a 401(k) plan can do for a small business, some Columbia, IL employers may still be uneasy, as they may not have the knowledge, time, or interest to establish and operate a plan. That’s where we come in. Here are some ways that our advisory firm can assist with your small business’s 401(k) plan:
- Plan design — A few quick internet searches are a poor replacement for years of experience and everyday interaction with retirement plans. Financial advisors can work with small business owners to create a 401(k) plan meant expressly to benefit them. They can help choose the right type of plan, set up contribution and matching formulas, and establish eligibility requirements.
- Setting up and operating a plan — There are numerous requirements you must follow when initiating your small business 401(k). You must:
- Adopt a written plan document
- Arrange a trust fund for plan assets
- Develop a record keeping system
- Provide plan information to participant
A financial advisory firm can assist with all of the above requirements, and handle the operation and yearly reviews of the plan.
- Advertising your 401(k) plan to prospective employees — The word "401(k)" might appear on a job ad in a list of benefits, but many in the job market don't know the full benefits a plan provides. We can bridge the words "401(k)" to concrete steps to people living the golden years of their dreams.
- Investment selection — Financial advisors who are an Accredited Investment Fiduciary® (AIF®) and are well versed in portfolio management will be able to offer investment insight, as well as work within investment principles such as diversification, risk tolerance, and rebalancing to optimally position employees' savings for further growth.
- Employee education — Employees need to understand their plan in order to get the greatest reward from it. At Correct Capital, we can talk directly to your small business's 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 stiff fines. A financial advisor can help to ensure all of the proper rules are followed.
- Fiduciary duty — As a plan sponsor, small business owners have a fiduciary responsibility to act in the best interest of plan participants. We are ethically and legally required to do what's in your best interest, and in the best interest of your employees and their retirement accounts.
A financial advisor offers 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 Establish a 401(k) For Your Small Business in Columbia, IL
If you own a small business in Columbia, IL, you want to focus on why you started your business – not being distracted by retirement plan responsibilities 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 314-930-401(k) or contact us online.
