401(k) for small business in Edwardsville, IL. Initiating a 401(k) plan for your small business in Edwardsville, IL can offer numerous benefits to both employers and employees, helping businesses offer more security and benefits to people in the job market. Beyond just offering more benefits than competitors, providing a 401(k) plan can also help both businesses and employees lower their tax liability. However, some business owners might not be sure if they want to move forward because of the time involved in setting up and operating an account, as well as the complexities of investment and financial regulations.
At Correct Capital Wealth Management, our Edwardsville, IL financial advisors and retirement consultants work with companies large and small to offer 401(k) plans that fit their business and provide stability for their employees. 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' savings. Speak to a Correct Capital team member today at 314-930-401(k) or fill out our online form to get started with establishing a 401(k) for your small business in Edwardsville, IL.
Do I Need a 401(k) For My Edwardsville, IL Small Business?
Setting up and maintaining a 401(k) for a small business in Edwardsville, IL has numerous benefits, for you, your employees, and your business goals alike:
- recruit and keep great employees — Providing a 401(k) plan can be an essential asset for recruiting and keeping high-performing workers, particularly in a competitive Edwardsville, IL job market. One survey says 401(k) plans are the most important financial benefit to employees, and offering one can help differentiate your business from competitors, especially if they are offered to people beyond the highest earners.
- Tax deductions — Both employers and employees can benefit from tax advantages with a 401(k) plan. Matching contributions from employers are tax deductible to the extent that the contributions do not surpass the annual corporate tax deduction limit on employer contributions, as defined 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. Employee contributions reduce their tax liability and their contributions grow tax free.
- Increased financial security for employees — A retirement account allows employees to feel better about how they'll live in retirement. Greater financial security ultimately leads to a more productive workforce.
- Decreased liability — Employers take on a fiduciary responsibility 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 fiduciary duty will go to them.
- Ease of administration — When you parter with a 3(16) administrator to establish your small business 401(k) plan, they'll handle the critical tasks of employee education, compliance, and administrative responsibilities for you, so you can benefit from the rewards of offering a plan without putting in too much work yourself. Moreover, advisors can help integrate contributions with your payroll system for further simplicity. If an employee moves to a new company, they can simply rollover their 401(k) to an IRA or new 401(k) without much hassle to you.
What 401(k) Plans Are Available to Small Businesses in Edwardsville, 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 size:
In any 401(k) plan, employees can put funds into the account through money taken out of their paychecks. Most 401(k)s offer a diversity of investments that may include mutual funds, index funds, bonds, and company stock. Employers can make matching contributions as an additional perk to employees. Most 401(k) plans must meet strict nondiscrimination requirements, and are subject to yearly tests to ensure the plan doesn't discriminate in favor of 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.
Edwardsville, IL companies 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 at different times than with a Roth deferral. With a traditional deferral, contributions are tax-deferred, meaning the contributions are made before taxes are taken out, lowering an employee's taxable income. When the money is withdrawn it is taxed as ordinary income at the employee's tax rate at the time of withdrawal.
With Roth deferrals, contributions are made with after-tax dollars, meaning the money grows tax-free and the savings and any gains can be withdrawn tax-free, so long as the plan participant has been contributing for at least five years and is 59-½ years old when the withdrawal is made. Roth 401(k)s are becoming more popular as they decrease tax liability in retirement.
- Safe Harbor Provision — If you decide to set up a Safe Harbor 401(k), as a business owner you would be required to make contributions that are fully vested when made. There are four ways in which an employer can contribute:
- In a non-elective contribution, an employer must contribute 3% of each eligible employee's compensation to the plan, whether or not the employee decides to contribute to the plan.
- 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 money is taken out of their paycheck unless they decide not to. The default contribution rate starts at 3% and increases by 1% every year until it reaches a maximum of 6%, unless the employee decides on 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 are meant for people who are self-employed, or a business where the only employee is a spouse. Contributions are tax deductible and the money is taxed when it's withdrawn. This allows participants to make higher contributions as they can make contributions both as a worker and an employer. Unlike other 401(k) plans, individual 401(k)s are not subject to 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 considering setting up a 401(k) plan for your small Edwardsville, IL business, schedule a meeting with one of our advisers today to get started.
How a Financial Advisor Can Help Small Edwardsville, IL Businesses With Their 401(k) Plans
Given the great things a 401(k) plan can do for a small business, some Edwardsville, IL employers might still be wary, as they may not have the know-how, time, or interest to establish and operate a plan. That’s where we come in. Here are some some of the many 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 decades of experience and everyday interaction with retirement plans. Financial advisors can work with small business owners to design a 401(k) plan meant expressly to benefit their business. They can help choose the right type of plan, set up contribution and matching formulas, and establish eligibility requirements.
- Initiating and managing a plan — There are numerous requirements you must adhere to when initiating your small business 401(k). You have to:
- 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 manage the operation and annual reviews of your 401(k).
- Marketing your 401(k) plan to those in the job market — The phrase "401(k)" might appear on a job listing in a list of benefits, but many in the job market don't know the full benefits a plan provides. We can connect the term "401(k)" to specific 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 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 best 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 can talk directly to your small business's employees so they're confident 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 fees. A financial advisor can help to ensure your recordkeeper and plan administrator do not inadvertently break with the regulations.
- Fiduciary duty — When offering a retirement plan, small business owners have a fiduciary duty 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 can provide remarkable value to Edwardsville, IL small business owners who want to experience the benefits of a 401(k) plan. By working with a financial advisor, small business owners can save on taxes and make their business more attractive to current and potential employees.
Call Correct Capital to Start a 401(k) For Your Small Business in Edwardsville, IL
If you own a small business in Edwardsville, IL, you want to focus on what you do best and what you're passionate about – not being distracted by administrative tasks you may or may not be knowledgeable about. 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 Edwardsville, IL business today, call Correct Capital at 314-930-401(k) or contact us online.