Small Business Retirement Plans in Baltimore, MD

Small Business Retirement Plans in Baltimore, MD. Offering a retirement plan to your Baltimore, MD employees is a great way to retain talent, boost performance, and get those much-desired tax breaks. However, for most business owners, it can be hard to know where to start. What type of plan is best for your business? What are the different laws that apply to different plans? What do I do when I want to change plans, or if I'm closing my business? Correct Capital's team of Baltimore, MD financial planners is committed to helping business owners and their employees reap the rewards of their retirement plans and understanding the complexity of their individual plans and benefits. Whether you're interested in modifying an existing plan or are looking to create an entirely new one, speak to a financial advisor at Correct Capital today at 314-930-401K or contact us through our website.

What Types of Retirement Plans Are Available to Small Businesses in Baltimore, MD?

The federal government and various financial custodians offer numerous retirement plans and accounts for small business owners and their employees to better prepare for retirement. Among the most common are:

SEP-IRA

This form of individual retirement account is available to self-employed businesses, freelancers, and businesses with very few employees. It follows the identical rules as a traditional IRA, where the money put into the account grows without taxes. Employers can deduct contributions they make on behalf of their employees. Only employers make deposits, which are flexible and can vary year-to-year. Additionally, the contributions are eligible for tax deduction.

Benefits of a SEP-IRA

• High Contribution Limits: Employers have the ability to contribute up to 25% of each employee’s compensation, with the maximum set at $69,000 for 2024.
• Flexibility: This plan does not require employers to contribute every year, which is perfect for businesses with changing profits.
• Simple Administration: With this plan, there is minimal paperwork and no annual filing requirements with the IRS except for regular tax filings.

Setting Up a SEP-IRA

• Select a Financial Institution: Choose a company to hold SEP IRA assets, such as a bank, brokerage firm, or credit union. Alternatively, opt for a virtual financial institution.
• Execute a Written Agreement: To establish the SEP IRA plan, create a contractual arrangement and inform eligible employees.
• Make Contributions: To make contributions, calculate an established percentage of each employee’s compensation or make payments based on a range of percentages.
• Maintain Records: Keep comprehensive records of all contributions made to employee accounts, including dates and figures. Additionally, ensure records are neatly arranged and easily accessible for review purposes.

SIMPLE IRA

"SIMPLE" stands for "Savings Investment Match Plan for Employees," and these IRAs are for businesses with a maximum of 100 employees. Employees can make contributions to their own accounts through deductions from their salaries, and employers can also contribute. This plan is low-cost as it's mainly funded by employees, and their contributions can be eligible for tax deduction.

Benefits of a SIMPLE IRA

• Ease of Setup and Administration: SIMPLE IRAs are easy to establish and maintain, with no annual filing requirements for employers. This makes them suitable for small businesses with limited administrative resources.
• Employer Contributions: Employers are required to make contributions, either by matching employee contributions up to 3% of their salary or making a non-elective contribution of 2% of each eligible employee’s salary.
• Employee Contributions: Employees can contribute up to $16,000 in 2024, with an extra catch-up contribution of $3,500 for those aged 50 and older.
• Immediate Vesting: All contributions to the SIMPLE IRA are promptly 100% vested, meaning employees have full ownership of all funds in their accounts as soon as contributions are made.

Setting Up a SIMPLE IRA

• Select a Financial Institution: Choose a banking establishment, investment fund, or brokerage firm to hold the SIMPLE IRA assets.
• Execute a Written Agreement: Use IRS Form 5304-SIMPLE or 5305-SIMPLE to create a written agreement outlining the terms of the plan.
• Employee Notification: Notify eligible employees about the plan, including information on how to participate and the benefits provided.
• Employee Enrollment: Assist employees in setting up their accounts and making their contributions.
• Employer Contributions: Decide whether to match up employee contributions or make non-elective contributions, and ensure these are made timely.

Personal Defined Benefit Plan

This plan is exclusively for sole proprietor businesses, or those with up to 5 employees. With this plan, you target a desired level of retirement income, and contribution limits are adjusted each year based on that, with an annual maximum limit. While this plan is highly customizable and allows for significant contributions, there may be initial expenses and yearly charges associated with it.

Benefits of a Personal Defined Benefit Plan

• High Contribution Limits: Allows for significantly higher contributions compared to other retirement plans, potentially reaching $275,000 annually (in the current year) depending on age, income, and the desired retirement benefit.
• Predictable Retirement Benefits: The plan promises a specific benefit at retirement, providing more predictability for retirement planning compared to defined contribution plans like 401k plans.
• Tax Advantages: Contributions are tax-deductible, reducing current taxable income. The investments grow tax-deferred until distribution.

Setting Up a Personal Defined Benefit Plan

• Consult with a Plan Provider: Work with a bank or retirement plan provider that has experience with defined benefit plans to establish the plan.
• Create a Plan Document: Draft a scheme document that details the terms of the plan, including benefit formulas and contribution requirements.
• Actuarial Calculations: Have a financial analyst calculate the necessary contributions to meet the promised benefits, per IRS requirements.
• Annual Administration: Manage the plan’s investments and ensure that required contributions are made annually. Annual actuarial reviews are necessary to adjust for any changes in funding requirements.
• Compliance and Reporting: To report on the plan’s status and compliance, file IRS Form 5500 annually.
• Permanence: To ensure compliance, a defined benefit plan must be in place for at least five years. Plans that are quickly terminated can be red flags and subject to regulatory scrutiny.

401(k) Plans

401(k)s are available to corporations of any size, and are highly adaptable. Employees may postpone their salary as contributions, and employers can make contributions every year. Most 401(k) plans come with significant tax planning advantages for both businesses and employees. They can include:

• Traditional 401(k)s
• Safe Harbor 401(k)s
• Automatic enrollment 401(k)s

Benefits of a 401(k) Plan

• Tax Advantages: To reduce the employee’s taxable income, contributions are made pre-tax. Alternatively, contributions can be made post-tax (Roth). Investments grow without immediate tax.
• Employer Matching: Many employers offer contribution matching, which can significantly boost an employee's retirement savings.
• Higher Contribution Limits: For the current year, employees can contribute up to $$23k, with an additional $seven thousand five hundred dollars catch-up contribution for those aged 50 and older.
• Loan Options: Participants can often take loans against their 401(k) balance, providing flexibility in case of urgent financial needs.

Setting Up a 401(k) Plan

• Choose a Plan Provider: Select a provider that offers a range of investment choices, administrative services, and employee education.
• Create a Plan Document: Outline the terms of the plan, including eligibility, contributions, and how funds are vested.
• Set Up a Trust: Ensure plan assets are held in trust to safeguard them for participants.
• Develop a Recordkeeping System: Maintain precise records of contributions, earnings, and distributions.
• Distribute Plan Information: Employers sponsoring a 401(k) must distribute plan information and changes in a timely manner.

Individual 401(k)

Also known as a Solo 401(k), this plan is designed to offer the same benefits as a business 401(k), but for individuals who are sole proprietors, or whose only employee is their spouse. Each year, you can contribute up to the annual 401(k) limit, and the employer may make a non-elective contribution up to 25% of compensation or, if self-employed, an amount considering your earned income and deducting half of self-employment tax paid and contributions made by you during the year. Another advantage of individual 401(k)s is that you can opt to open a Roth 401(k) account, or roll over pre-tax assets.

Setting Up an Individual 401(k)

• Choose a Plan Provider: Select a financial institution or brokerage that offers Individual 401(k) plans. Look for providers with a range of investment options and minimal fees.
• Create a Plan Document: Create the terms of your plan, including contribution limits, investment options, and loan provisions.
• Open an Account: Open your Individual 401(k) account with the chosen provider. This typically involves submitting an application and providing necessary documentation.
• Make Contributions: Decide on your contribution amounts for the year and make regular contributions. Ensure you stay within the IRS limits for total contributions.
• Compliance and Reporting: If your plan assets exceed $250,000, you must file IRS Form 5500 annually. Maintain precise records of all contributions and transactions.

Profit Sharing Plans

A Profit Sharing Plan is a type of retirement plan where employers can make voluntary contributions to employee retirement accounts, determined by the company's profits. These plans are intended to share the company’s success with its employees and encourage them to contribute to the company’s profitability.

Benefits of a Profit Sharing Plan

• Flexibility in Contributions: Employers can determine each year how much to contribute based on the company's profitability. This makes it an flexible option for businesses with variable earnings.
• Tax Advantages: Contributions are tax-deductible for the business, reducing taxable income. Additionally, the funds grow tax-free until withdrawal, which can benefit employees' long-term savings.
• Employee Motivation and Retention: Linking contributions to company profits can boost employee morale and loyalty, as employees directly benefit from the company’s success.
• High Contribution Limits: Employers can contribute up to the lesser of 25% of an employee’s compensation or $$66k for 2024, making it a advantageous option for employee benefits.

Setting Up a Profit Sharing Plan

• Choose a Plan Provider: Select a bank or retirement plan provider to administer the plan.
• Create a Plan Document: Draft a plan document outlining the profit-sharing formula, eligibility requirements, and vesting schedule.
• Communicate with Employees: Notify employees about the plan, how it works, and the benefits they can expect.
• Determine Contributions: Each year decide the amount to contribute based on company profits and the predetermined formula.
• File Necessary Forms: File IRS Form 5500 every year to report the plan’s status and compliance.

Employee Stock Ownership Plan (ESOPs)

An Employee Stock Ownership Plan (ESOP) is a retirement plan that invests primarily in the employer's stock. ESOPs give employees ownership interest in the company, aligning their interests with the business's success, and potentially helping set up the business's next generation of leadership.

An Employee Stock Ownership Plan (ESOP) is a retirement plan that invests primarily in the employer's stock. ESOPs provide employees equity in the company, matching their interests with the business's success, and potentially preparing the business's upcoming generation of leadership.

Benefits of an ESOP

• Employee Ownership: ESOPs grant employees with an ownership stake in the company, which can enhance motivation and dedication.
• Tax Benefits for the Company: Contributions to the ESOP are eligible for tax deduction, and the company can also gain tax benefits related to the sale of stock to the ESOP.
• Retirement Savings for Employees: Employees benefit from the growth in the value of the company’s stock, granting potentially significant retirement savings.
• Succession Planning: ESOPs can be an effective method for business succession, permitting owners to sell their shares to their best employees, who can steadily take the lead as previous owners ease into retirement.

Setting Up an ESOP

• Feasibility Study: Execute a feasibility study to determine if an ESOP is a suitable option for your company.
• Hire ESOP Advisors: Bring on board financial, legal, and ESOP advisors to guide the setup process.
• Create a Plan Document: Compose a plan document that details the terms of the ESOP, including how shares will be apportioned and vested.
• Establish a Trust: Establish an ESOP trust to hold the company stock on behalf of employees.
• Communicate with Employees: Educate employees about the ESOP, how it works, and the perks they can expect.
• Compliance and Reporting: Submit necessary documents with the IRS and the Department of Labor, including Form 5500, to ensure compliance.

Multiple Employer Plans (MEPs)

A Multiple Employer Plan (MEP) is a type of retirement plan that allows multiple, unrelated employers to participate in a single retirement plan and achieve economies of scale. MEPs are designed to provide small businesses with a cost-effective and administratively efficient way to offer retirement benefits to their employees.

Benefits of an MEP

• Cost Savings: By sharing resources with other employers, businesses can lower administrative costs and fees associated with maintaining a retirement plan. This cost-sharing makes MEPs an favorable option for small businesses looking to save on expenses.
• Administrative Efficiency: MEPs simplify the management of retirement plans by combining administrative tasks. This includes plan setup, compliance, reporting, and participant communication, which are handled by the MEP sponsor or administrator.
• Improved Access to Benefits: Through an MEP, small businesses that might not have the resources to provide a retirement plan on their own to deliver competitive retirement benefits, which can help to attract and retain talented employees and create a competitive advantage in hiring they otherwise may not have had.
• Fiduciary Relief: The MEP sponsor typically assumes most of the fiduciary responsibilities, reducing the liability and administrative burden on individual employers.

Setting Up an MEP

• Join an Existing MEP or Form a New One: Small businesses can either join an existing MEP or collaborate with other businesses to form a new one. This step involves selecting a MEP sponsor who will manage the plan.
• Select a Plan Provider: The MEP sponsor will work with a financial institution or retirement plan provider to administer the plan.
• Adopt the Plan: Each participating employer must formally adopt the MEP by signing an adoption agreement and providing necessary employee information.
• Employee Enrollment: Explain the plan details to employees and facilitate their enrollment in the MEP.
• Ongoing Administration: The MEP sponsor handles the majority of the administrative tasks, including compliance with IRS and Department of Labor requirements, submitting required documents, and managing plan assets.

There are advantages and disadvantages to each plan, and which may be "best" for you will depend on your business and your and your employees' needs. Different plans and accounts have different tax incentives, fees, required minimum distributions, contribution limits, and more. A renowned financial advisor like those at Correct Capital will be able to help you determine which plan works best for you and your team.

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Why You Should Set Up a Small Business Retirement Plan in Baltimore, MD

The particular, financial-based advantages to your Baltimore, MD small business retirement plan will largely be based on the specific plan you choose. However, a small business retirement plan, whichever one you choose, has universal benefits. Three out of five employees responded to a survey saying it is a "very important" factor in how good they feel at their present employment, while employers also get tax breaks and can better attract and motivate employees. Below are some of the main benefits for both businesses and employees of establishing a small business retirement plan:

Why Should I Consult With a Financial Advisor in Baltimore, MD to Assist With My Small Business Retirement Plan?

Setting up small business retirement plans is complicated. While the federal government does not currently require any business to offer retirement savings options to workers, some states require employers with a certain number of employees to have a retirement plan. Baltimore, MD retirement consultants that are experienced in helping business owners establish retirement plans are usually needed to not only ensure the plan is right for you, but that you abide by frequently chancing tax and business laws.

As your Baltimore, MD retirement plan consultants for your small business, our advisers will:

• Help you choose which plan works best for you and your employees, and the right custodian to hold plan assets
• Assist you in establishing your plan, including creating a document that complies with IRS code, arranging a trust for plan assets, helping employees understand how specific of the plan apply to their savings, and creating a record keeping system
• Help you operate your plan by staying compliant with relevant laws, managing the plan's assets, and distributing benefits
• Help educate your employees on your plan, its benefits, and how they can use it as a component to their continued financial health

Correct Capital's Baltimore, MD financial planners are fiduciary advisors, meaning we are legally and ethically obligated to do what's best for you and your employees. We work for you, and not our own firm. Request a consultation with a member of our advisor team today.

Common Challenges and Solutions in Small Business Retirement Plans

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Challenge 1: High Setup and Administrative Costs

Many small businesses are unwilling to set up retirement plans due to the expected high costs.

Solution:

• SIMPLE IRA and SEP IRA: These plans have reduced setup and administrative costs compared to traditional 401(k) plans.
• Tax Credits: The SECURE Act 2.0 offers tax credits for small businesses to offset the costs of setting up retirement plans. Businesses can receive a credit of up to $5,000 annually for three years to cover startup costs, and an additional credit for automatic enrollment plans.

Challenge 2: Administrative Complexity

The complexity of maintaining a retirement plan can be daunting for small business owners.

Solution:

• Outsource Administration: Many plan providers offer administrative services that can handle the majority of the administrative tasks, compliance, and record-keeping tasks. Providers offer comprehensive administrative support, including payroll integration and fiduciary services.
• Multiple Employer Plans (MEPs): Participating in an MEP can significantly reduce the administrative burden as the MEP sponsor handles most of the administrative duties, including compliance and reporting.

Challenge 3: Employee Participation and Engagement

Low employee participation can limit the effectiveness of a retirement plan.

Solution:

• Automatic Enrollment: Implementing automatic enrollment can significantly increase participation rates. Employees are automatically enrolled at a default contribution rate but can opt out if they choose. This approach has been shown to increase participation and savings rates.
• Employee Education: Providing regular education and communication about the benefits of the retirement plan can help increase employee engagement. Host workshops, seminars, and one-on-one meetings to ensure employees understand how the plan works and the importance of saving for retirement. Correct Capital offers employee education, including one-on-one meetings and quarterly webinars, if you choose us as your retirement plan advisors.

Challenge 4: Compliance with Regulations

Managing the complex regulatory landscape can be challenging, especially for business owners who need to keep their attention on their core business.

Solution:

• Professional Guidance: Hiring a financial advisor or consultant who specializes in retirement plans can help ensure compliance with ERISA, IRS, and Department of Labor regulations. We can assist with plan setup, annual filings, and ongoing management.
• Use of Technology: Many retirement plan providers offer online platforms that help manage compliance by automating reporting, tracking contributions, and ensuring that all regulatory requirements are met.

Challenge 5: Flexibility and Adaptability

Business owners need plans that can adjust to changing business conditions.

Solution:

• Flexible Plans: Opt for retirement plans that offer flexibility in contributions. SEP IRAs, for example, allow employers to decide each year how much to contribute based on the company’s profitability, making it a suitable option for businesses with variable income.
• Regular Plan Reviews: Conduct regular reviews of your retirement plan to ensure it continues to meet the needs of your business and employees. Modify the plan as necessary to align with changes in your business environment and workforce demographics.

With the support of dedicated Baltimore, MD financial advisors and retirement plan specialists, your business can navigate these challenges to create a small business retirement plan that works for both you and your employees.

Other services we offer in Baltimore, MD include:

• 401(k) Audit
• High-Net-Worth Wealth Management
• Retirement Planner
• Financial Planning
• Retirement Plan Consultants
• Fiduciary Financial Advisor

Small Business Retirement Plans in Baltimore, MD | Correct Capital

Owning a small business comes with a mountain of daily, monthly, and annual tasks to ensure things run smoothly — setting up and maintaining a small business retirement plan doesn't have to be one of them. Correct Capital currently manages over 37 plans for a variety of types of businesses, and represents over $212 million in total plan assets* across the United States. To set up a retirement plan for your small business, or learn what we can do for business owners, speak to a financial advisor at Correct Capital today at 314-930-401K or contact us through our website.

*as of March 2024