401 (k) for small business in O'Fallon, IL. Setting up a 401(k) plan for your small business in O'Fallon, IL can offer various benefits to both employers and employees, helping businesses offer more security and benefits to prospective employees. In addition to attracting great employees, offering 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 proceed because of the time involved in setting up and maintaining a plan, in addition to the complexities of investment and financial regulations.
At Correct Capital Wealth Management, our O'Fallon, IL financial planners and retirement consultants help companies of all sizes offer customized and effective 401(k) plans. 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 314-930-401(k) or contact us online to get started with creating a 401(k) for your small business in O'Fallon, IL.
Should I Establish a 401(k) For My O'Fallon, IL Small Business?
Establishing and maintaining a 401(k) for a small business in O'Fallon, IL can do wonders for employers, your workers, and your business's bottom line:
- recruit and retain great talent — Providing retirement plans can be an important asset for attracting and retaining accomplished employees, particularly if many O'Fallon, IL companies are advertising for the same position. 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 you offer 401(k)s to rank-and-file employees as well.
- 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 up to the yearly 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 retirement account allows employees to save for retirement through automatic contributions deducted from their paychecks. Greater financial security ultimately leads to more productivity.
- Reduced liability — Employers take on a fiduciary responsibility to their employees when they provide retirement plans, which involves a wide range of investment knowledge and obligations. If you work with an ERISA 3(38) Fiduciary provider to establish and manage your small business's 401(k), the majority of that liability will be placed on them.
- Simple administration — When you parter with a 3(16) administrator to set up your small business 401(k) plan, they'll manage the critical tasks of employee education, compliance, and administrative responsibilities on your behalf, so you can enjoy 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 easily perform a 401(k) rollover to an IRA or new 401(k) without you having to do much work.
What 401(k) Plans Are Available to Small Businesses in O'Fallon, 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:
In any 401(k) plan, employees can put savings into the account through payroll deductions. Most 401(k)s offer a wide range of investment options. Employers can employers can deposit an equal amount as their employees as an additional benefit to employees. Most 401(k) plans must adhere to strict nondiscrimination requirements, and are subject to yearly tests to ensure they remain compliant. The IRS mandates contribution limits each year; in 2023 the limit is $22,500, unless you are 50 or older, in which case you can contribute an additional $7,500 as a catch-up contribution.
O'Fallon, IL employers with multiple employees have a few different options in how they set 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 it is pre-tax money, 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 money the employee's already paid taxes on, meaning the money grows tax-free and there are no taxes when the money's withdrawn, 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 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 obligated to make fully vested contributions to your employees' accounts. 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 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 money is taken out of their paycheck 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 chooses a different contribution rate.
In exchange for required 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 owner-only businesses, 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 allows participants to save more as they can make contributions both as a worker and an employer. Unlike other 401(k) plans, individual 401(k)s do not require annual filings with the IRS unless the account balance surpasses $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 O'Fallon, IL business, schedule an appointment with one of our advisers today to learn more about the benefits and options available to you.
How a Financial Advisor Can Help Small O'Fallon, IL Businesses With Their 401(k) Plans
Even considering the great things a 401(k) plan can do for a small business, some O'Fallon, IL employers might still be cautious, as managing a 401(k) plan is complex and time-consuming. That’s where we come in. 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 are a poor replacement for years of experience and working on retirement plans every day. Financial advisors can partner with small business owners to develop 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.
- Initiating and managing a plan — There are specific steps you must take when establishing your small business 401(k). You have to:
- 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 oversee the operation and annual reviews of the plan.
- Marketing your 401(k) plan to those in the job market — The phrase "401(k)" might appear on a job ad as a bullet point, but many in the job market don't know the full benefits a plan provides. We can connect the term "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 offer market insight, as well as work within investment principles such as diversification, risk tolerance, and rebalancing to optimally position employees' money 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 they're confident with how their money is being held and invested.
- Compliance — Employers must adhere to certain regulations when offering a 401(k) plan. Not following them can lead to harsh fees. 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 in the best interest of plan participants. We are ethically and legally obligated to do what's in your best interest, and in the best interest of your employees and their retirement accounts.
A financial advisor offers significant value to O'Fallon, IL small business owners who are looking to establish a 401(k) plan. By consulting 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 Establish a 401(k) For Your Small Business in O'Fallon, IL
If you own a small business in O'Fallon, IL, you want to focus on what you do best and what you're passionate about – not being distracted 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 O'Fallon, IL business today, call Correct Capital at 314-930-401(k) or contact us online.