Small Business Retirement Plans in Cary, NC. Offering a retirement plan to your Cary, NC employees is a great way to retain talent, boost performance, and get those much-desired tax breaks. While the benefits may be clear, the complexities of establishing and maintaining small business retirement plans are not. What benefits do different kinds of plans provide? What are the different laws I'll have to follow? What happens when a new plan seems like a better option, or if I'm retiring and my business will no longer be running? Correct Capital's team of Cary, NC financial planners is committed to helping business owners and their employees get the most out of having a sound retirement plans and understanding the specifics of federal regulations. For anything from initial setup and employee education to fine-tuning an existing plan, speak to a financial advisor at Correct Capital today at 314-930-401K or contact us online.
What Types of Retirement Plans Are Available to Small Businesses in Cary, NC?
Various financial custodians provide a wide array of investment options and programs for small business owners and their employees to better prepare for retirement. These include:
SEP-IRA
This type 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 contributions, which are modifiable and can vary annually. Additionally, the contributions are deductible from taxes.
Benefits of a SEP-IRA
- High Contribution Limits: For 2024, employers are allowed to contribute up to 25% of each employee’s compensation, with a cap of $69,000.
- Flexibility: Employers are not required to contribute every year, making it suitable for businesses with changing profits.
- Simple Administration: Minimal paperwork and no need for yearly filings with the IRS beyond regular tax filings.
Setting Up a SEP-IRA
- Select a Financial Institution: Choose an institution to hold SEP IRA assets, for instance a bank, brokerage firm, or credit union. Alternatively, opt for an online financial institution.
- Execute a Written Agreement: Create a written agreement and notify eligible employees.
- Make Contributions: Calculate and make contributions based on an established percentage of each employee’s compensation. Alternatively, make payments based on a percentage range determined by business earnings.
- Maintain Records: Keep complete records of all contributions made to employee accounts, including dates and figures. Additionally, ensure records are neatly arranged and easily accessible for audit purposes.
SIMPLE IRA
"SIMPLE" stands for "Savings Investment Match Plan for Employees," and these IRAs are for businesses with up to 100 employees. Employees can make contributions to their own accounts through salary deferrals, and employers can also contribute. This plan is inexpensive as it's mainly funded by employees, and their contributions can be deductible from taxes.
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 instantly 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, mutual fund, or investment brokerage 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 details 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 employee contributions or make non-elective contributions, and ensure these are made promptly.
Personal Defined Benefit Plan
This plan is specifically 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 a maximum limit set each year. While this plan is highly customizable and allows for significant contributions, there may be startup costs and recurring costs 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 $two hundred seventy-five thousand dollars annually (in 2024) 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 accounts.
- Tax Advantages: Contributions are tax-deductible, reducing current taxable income. The investments grow tax-free 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 plan document that details the terms of the plan, including benefit formulas and contribution requirements.
- Actuarial Calculations: Have an actuary calculate the necessary contributions to meet the promised benefits, ensuring compliance with IRS requirements.
- Annual Administration: To manage the plan’s investments, ensure that required contributions are made annually and conduct annual actuarial reviews 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 a minimum of 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 private companies of any size, and are highly customizable. Employees may defer their salary as contributions, and employers can make annual contributions. 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: Contributions are made before taxes, reducing the employee’s taxable income. Alternatively, contributions can be made post-tax (Roth). Investments grow tax-free until withdrawn.
- Employer Matching: Many employers offer match programs, which can significantly boost an employee's retirement savings.
- Higher Contribution Limits: For the current year, employees can contribute up to $twenty-three thousand dollars, with an additional $7,500 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 financial emergencies.
Setting Up a 401(k) Plan
- Choose a Plan Provider: Select a provider that offers multiple investment opportunities, administrative support, and staff training.
- Create a Plan Document: Prepare 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 protect them for participants.
- Develop a Recordkeeping System: Keep accurate records of contributions, earnings, and distributions.
- Distribute Plan Information: Employers sponsoring a 401(k) must distribute plan information and modifications in a timely manner.
Individual 401(k)
Designed to offer the same benefits as a company 401(k), this plan is also known as a Individual 401(k). It is ideal for individuals who are independent contractors, 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 additional 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 benefit of individual 401(k)s is the ability to open a Roth 401(k) account, or roll over pre-tax assets.
Setting Up an Individual 401(k)
- Choose a Plan Provider: Choose 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: Set up 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 $two hundred fifty thousand dollars, you must file IRS Form 5500 annually. Keep accurate records of all contributions and transactions.
Profit Sharing Plans
A Profit Sharing Plan is a type of retirement plan where employers can make optional 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 motivate them to boost the company’s profitability.
Benefits of a Profit Sharing Plan
- Flexibility in Contributions: Employers can decide each year how much to contribute based on the company's profitability. This makes it an flexible option for businesses with changing 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 a quarter of an employee’s compensation or $66,000 for this year, making it a beneficial option for employee benefits.
Setting Up a Profit Sharing Plan
- Choose a Plan Provider: Select a financial institution or retirement plan provider to administer the plan.
- Create a Plan Document: Write a plan document outlining the profit-sharing formula, eligibility requirements, and vesting schedule.
- Communicate with Employees: Advise employees about the plan, how it works, and the benefits they can expect.
- Determine Contributions: Yearly decide the amount to contribute based on company profits and the predetermined formula.
- File Necessary Forms: File IRS Form 5500 annually 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 a stake in the company, matching their interests with the business's success, and potentially establishing the business's upcoming generation of leadership.
Benefits of an ESOP
- Employee Ownership: ESOPs provide employees with an equity share in the company, which can boost incentive and loyalty.
- Tax Benefits for the Company: Contributions to the ESOP are deductible from taxes, 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, providing potentially significant retirement savings.
- Succession Planning: ESOPs can be an effective method for business succession, permitting owners to sell their shares to high-performing employees, who can gradually take the lead as previous owners ease into retirement.
Setting Up an ESOP
- Feasibility Study: Carry out a feasibility study to determine if an ESOP is a feasible option for your company.
- Hire ESOP Advisors: Retain financial, legal, and ESOP advisors to guide the setup process.
- Create a Plan Document: Write a plan document that defines the terms of the ESOP, including how shares will be distributed and vested.
- Establish a Trust: Initiate an ESOP trust to hold the company stock on behalf of employees.
- Communicate with Employees: Inform employees about the ESOP, how it works, and the benefits they can expect.
- Compliance and Reporting: Submit necessary documents with the IRS and the Department of Labor, including Form 5500, to keep your plan compliant.
Multiple Employer Plans (MEPs)
A Multiple Employer Plan (MEP) is a type of retirement plan that allows multiple, unrelated employers to take part in a single retirement plan and achieve economies of scale. MEPs are designed to provide small businesses with a affordable and administratively efficient way to offer retirement benefits to their employees.
Benefits of an MEP
- Cost Savings: By combining resources with other employers, businesses can lower administrative costs and fees associated with maintaining a retirement plan. This cost-sharing makes MEPs an advantageous option for small businesses looking to save on expenses.
- Administrative Efficiency: MEPs facilitate 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: Small businesses that might not have the resources to offer a retirement plan on their own can provide competitive retirement benefits through an MEP, helping to attract and retain talented employees and offer a competitive advantage in hiring they otherwise may not have had.
- Fiduciary Relief: The MEP sponsor typically assumes most of the fiduciary responsibilities, decreasing 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 become part of 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 bank or retirement plan provider to administer the plan.
- Adopt the Plan: Each participating employer must formally adopt the MEP by executing 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 pros and cons 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 respected financial advisor like those at Correct Capital will be able to help you determine which plan works best for you and your team.
Benefits of Setting Up a Small Business Retirement Plan in Cary, NC
The specific, financial-based benefits for your Cary, NC small business retirement plan is dependent upon which plan you choose. However, a small business retirement plan, whichever one you choose, has universal benefits. Over half of employees responded to a survey stating it is a "very important" factor in job satisfaction, while employers also get tax breaks and can better attract and motivate employees. Companies and employees will both enjoy:
Employee Benefits
- Better confidence in their retirement planning
- Reduced taxable income
- Contributions are simple with salary deferral
- Contributions and investment gains are not taxed until they withdraw them
- As interest accrues, small contributions grow into significant sums of money
- Ability to perform a 401(k) rollover if it's beneficial down the road
Business Benefits
- Attract, recruit, and retain talent
- Incentivize based on performance-based employer contributions
- Deduct your taxable income from your taxable income
- Flexible plan options to fit your plan to your needs
- Tax credits upon initial set-up
Do I Need a Financial Advisor in Cary, NC 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 employer to offer a retirement plan to workers, some states require employers of a certain size to offer access to a retirement plan. Cary, NC retirement consultants that have spent years helping business owners open retirement plans are usually needed to not only ensure you and your employees get the most out of your plan, but that you follow frequently chancing tax and business laws.
As your Cary, NC retirement plan consultants for your small business, our team will:
- Help you choose which plan works best for you and your employees, and which financial institution should house the assets
- Assist you in setting up your plan, including adopting a written plan, establishing a trust for plan assets, helping employees understand how specific of the plan apply to their retirement, and creating a record keeping system
- Help you operate your plan by keeping up-to-date with relevant laws, managing the plan's assets, and distributing benefits
- Help educate your employees on your plan, its benefits, and how it can serve as a component to their ongoing financial journey
Correct Capital's Cary, NC advisors hold ourselves to the fiduciary standard, meaning we are obligated, by law and by ethics to only work in your best interest. As an independent firm, we have the freedom and flexibility to tailor our offerings to best suit the goals of our clients. Schedule a meeting with a member of our advisor team today.
Common Challenges and Solutions in Small Business Retirement Plans
Challenge 1: High Setup and Administrative Costs
Many small businesses hesitate to set up retirement plans due to the perceived 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, plus 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 integration with payroll and fiduciary responsibilities.
- Multiple Employer Plans (MEPs): Enrolling 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
Minimal employee engagement 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 boost participation and savings rates.
- Employee Education: Providing regular education and communication about the benefits of the retirement plan can help increase employee engagement. Provide 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.
Issue 4: Regulatory Compliance
Handling 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. Our team 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. Adjust the plan as necessary to align with changes in your business environment and workforce demographics.
With the assistance of dedicated Cary, NC financial advisors and retirement plan specialists, your business can manage these challenges to create a small business retirement plan that works for both you and your employees.
Other services we offer in Cary, NC include:
- Family Wealth Planning
- Financial Planning for Business Owners
- Comprehensive Financial Planning
- Retirement Income Planning
- Investment Planning
- Retirement Financial Planning
- Independent Financial Advisor
- Roth Conversion
- Investment Management
- 401(k) Audit
Other services we offer in Cary, NC include:
- Family Wealth Planning
- Financial Planning for Business Owners
- Comprehensive Financial Planning
- Retirement Income Planning
- Investment Planning
- Retirement Financial Planning
- Independent Financial Advisor
- Roth Conversion
- Investment Management
- 401(k) Audit
Small Business Retirement Plans in Cary, NC | Correct Capital
Owning a small business involves a mountain of daily, monthly, and annual tasks to ensure things run smoothly — setting up and maintaining a small business retirement plan shouldn't 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* nationwide. To set up a retirement plan for your small business, or learn what other services we offer to business owners, call Correct Capital today at 314-930-401K or contact us online.
*as of March 2024
