401(k) for small business in O'Fallon, IL. Setting up a 401(k) plan for your small business in O'Fallon, IL provides numerous benefits to both employers and employees, helping businesses offer more security and benefits to prospective employees. In addition to offering more benefits than competitors, offering a 401(k) plan can also help both businesses and employees lower their tax liability. But, some business owners might not be sure if they want to proceed because of the time involved in establishing and operating a plan, as well as the intricate web of regulations, laws, and investment opportunities available.
At Correct Capital Wealth Management, our O'Fallon, IL financial advisors and retirement consultants work with companies large and small to offer customized and successful 401(k) plans. We do the financial and administrative work for you while you focus on your business. Speak to a Correct Capital team member today at 314-930-401(k) or contact us online to learn more about setting up a 401(k) for your small business in O'Fallon, IL.
Why You Should Up a 401(k) for Your Small O'Fallon, IL Business
Establishing and maintaining a 401(k) for a small business in O'Fallon, IL has numerous benefits, for employers, your workers, and your business goals alike:
- Attract and retain great talent — Offering retirement plans is an essential asset for attracting and keeping skilled workers, particularly in a competitive O'Fallon, 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 management.
- Tax deductions — Both employers and employees can reduce how much they owe in taxes with a 401(k) plan. Matching contributions employers make are tax deductible to the extent that the contributions do not exceed the annual corporate tax deduction limit on employer contributions, as stipulated in section 404 of the Internal Revenue Code. There are also several tax credits for first-time 401(k) plans and offering automatic enrollment. Employees can benefit from tax-deferred contributions and potentially reduce their taxable income.
- Increased financial security for employees — A 401(k) plan 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 retirement plans, which involves a a deep level of investment savvy and obligations. If you partner with an ERISA 3(38) Fiduciary advisor to assist you with your small business's 401(k), the bulk of that liability will be passed onto them.
- Simple administration — When you parter with a 3(16) administrator to establish your small business 401(k) plan, they'll take care of the lion's share of employee education, compliance, and administrative duties for you, so you can enjoy the rewards of offering a plan without putting in too much work yourself. Additionally, advisors can help integrate contributions with your payroll system for further simplicity. If an employee moves to a new company, they can easily 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 O'Fallon, IL?
Small businesses, depending on what type of company they are, can have anywhere from one to 1,500 employees. 401(k) plans are available to all businesses, regardless of size:
In any 401(k) plan, employees can put savings into the account through payroll deductions. Most 401(k)s have a wide range of investment options. Employers can employers can deposit an equal amount as their employees as an additional perk to employees. Most 401(k) plans must follow stringent nondiscrimination requirements, and are subject to yearly tests to ensure they remain compliant. The IRS sets contribution limits each year; in 2023 that is $22,500, unless you are 50 or older, in which case the limit is $30,000.
O'Fallon, IL companies with multiple employees have a few different options in how they set up their 401(k) plan:
- Traditional vs. Roth 401(k) Deferrals — The main difference between traditional and Roth deferrals is when your employees pay taxes on their contributions. With a traditional deferral, contributions are tax-deferred, meaning the money is deposited 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 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 withdrawal is made. Roth 401(k)s are becoming increasingly popular as they decrease tax liability 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. 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 choose to opt out or contribute a different amount. The default contribution rate starts at 3% and increases by 1% every year until it reaches a maximum of 6%, unless the employee chooses 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
These are are meant for people who are self-employed, or businesses where the only employees are spouses. Contributions can be deducted from taxable income and savings grow tax-deferred until the money is taken out. 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.
The "best" plan for your will depend on your business and your and your employees' needs. If you're considering establishing a 401(k) plan for your small O'Fallon, IL business, schedule a meeting with one of our advisers today to learn more about the benefits and options available to you.
How a Financial Advisor Can Help Your O'Fallon, IL Small Business With Your 401(k) Plans
Even considering the benefits of a small business offering a 401(k) plan, some O'Fallon, IL employers might still be uneasy, as they may not have the know-how, time, or interest to establish and operate a plan. That’s where a financial advisor can help. 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 years of experience and everyday interaction with retirement plans. Financial advisors can work with small business owners to create a 401(k) plan that meets the specific needs of their business and employees. They can help choose the right type of plan, set up contribution and matching formulas, and establish eligibility requirements.
- Establishing and operating a plan — There are specific steps you must take when beginning 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 participant
A financial advisory firm can assist with all of the above requirements, and manage the operation and annual reviews of your 401(k).
- Marketing your 401(k) plan to potential employees — The phrase "401(k)" might show up on a job ad as a bullet point, but many in the job market don't fully understand what a 401(k) can do for them. We can bridge the term "401(k)" to specific images of a more secure retirement, with very clear stepping stones on 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 offer market insight, as well as work within investment principles such as diversification, risk tolerance, and rebalancing to best position employees' funds 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 speak 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 harsh penalties. A financial advisor can help to ensure your recordkeeper and plan administrator do not inadvertently fail to comply with a requirement.
- Fiduciary responsibility — As a plan sponsor, small business owners have a fiduciary duty to act in the best interest of their employees. We are ethically and legally required to do what's in your best interest, and in the best interest of your employees and their funds.
A financial advisor offers significant value to O'Fallon, IL small business owners who want to experience the benefits of 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 O'Fallon, IL
If you own a small business in O'Fallon, IL, you want to spend your time on what you do best and what you're passionate about – not being distracted by retirement plan responsibilities 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 O'Fallon, IL business today, call Correct Capital at 314-930-401(k) or contact us online.