Small Business Retirement Plans in Charlotte, NC. Offering a retirement plan to your Charlotte, 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 difficulties of opening and maintaining small business retirement plans are not. What benefits do different kinds of plans provide? What are the different laws that apply to different plans? What happens when I want to change plans, or if I'm retiring and my business will no longer be running? Correct Capital's team of Charlotte, NC financial planners has over 70 years of combined experience helping business owners and their employees get the most out of having a sound retirement plans and navigate the specifics of federal regulations. For anything from initial setup and employee education to making annual adjustments, 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 Charlotte, NC?
Small business owners and their employees are offered retirement plans through the federal government and various financial custodians to better prepare for retirement. Among the most common are:
SEP-IRA
This form of individual retirement account is available to sole proprietor businesses, freelancers, and businesses with very few employees. It follows the similar rules as a traditional IRA, where the money put into the account grows tax-free. Employers can deduct contributions they make on behalf of their employees. Only employers make payments, which are adjustable and can vary year-to-year. Additionally, the contributions are tax-deductible.
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: Employers are not required to contribute each year, making it suitable for businesses with variable profits.
- Simple Administration: The plan requires minimal paperwork and does not require annual filings with the IRS beyond regular tax filings.
Setting Up a SEP-IRA
- Select a Financial Institution: Choose a provider to hold SEP IRA assets, like a bank, brokerage firm, or credit union. Alternatively, opt for a virtual financial institution.
- Execute a Written Agreement: Create a plan document and notify eligible employees.
- Make Contributions: Contributions can be made by calculating a set percentage of each employee’s compensation. Alternatively, deposit funds based on a range of percentages determined by business performance.
- Maintain Records: To maintain records, keep complete records of all contributions made to employee accounts, including time stamps 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 affordable 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 simple to establish and maintain, with no annual filing requirements for employers. This makes them perfect 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 a supplementary 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 bank, 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 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 owner-only businesses, or those with a maximum of 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 $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 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 an investment firm 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: File IRS Form 5500 annually to report on the plan’s status and compliance.
- Permanence: A defined benefit plan should be maintained for five years. Quickly terminated plans often serve as red flags and may attract regulatory scrutiny.
401(k) Plans
401(k)s are available to businesses of any size, and are highly adaptable. Employees may allocate 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 can be made before taxes, which reduces the employee’s taxable income. Alternatively, post-tax (Roth) contributions can be made. 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 this 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: Choose a provider that offers a range of investment opportunities, management assistance, and staff training.
- Create a Plan Document: Outline the terms of the plan, including eligibility, contributions, and vesting schedules.
- Set Up a Trust: Ensure plan assets are held in trust to protect them for employees.
- Develop a Recordkeeping System: Ensure detailed 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)
Designed to offer the same benefits as a traditional 401(k), this plan is also known as a Solo 401(k). It is ideal 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 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: Pick a financial institution or brokerage that offers Individual 401(k) plans. Search for providers with various investment options and lower fees.
- Create a Plan Document: Prepare 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 filling out 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 $$250k, 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 discretionary 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 determine each year how much to contribute based on the company's profitability. This makes it an adaptable option for businesses with changing earnings.
- Tax Advantages: Contributions are tax-deductible for the business, reducing taxable income. Additionally, the funds grow tax-deferred, which can benefit employees' long-term savings.
- Employee Motivation and Retention: Linking contributions to company profits can enhance 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 $sixty-six thousand dollars for the current year, making it a generous option for employee benefits.
Setting Up a Profit Sharing Plan
- Choose a Plan Provider: Pick 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: Annually decide the amount to contribute based on company profits and the predetermined formula.
- File Necessary Forms: File IRS Form 5500 each 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 pension scheme that primarily invests in the employer's stock. ESOPs provide employees a stake in the company, aligning their interests with the business's success, and potentially helping establish the business's next generation of leadership.
Benefits of an ESOP
- Employee Ownership: ESOPs grant employees with an partial ownership in the company, which can heighten motivation and loyalty.
- Tax Benefits for the Company: Contributions to the ESOP are eligible for tax deduction, and the company can also receive tax benefits associated with the sale of stock to the ESOP.
- Retirement Savings for Employees: Employees profit from the growth in the value of the company’s stock, offering potentially significant retirement savings.
- Succession Planning: ESOPs can be an effective tool for business succession, allowing owners to sell their shares to their best employees, who can slowly 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: Engage financial, legal, and ESOP advisors to guide the setup process.
- Create a Plan Document: Compose a plan document that defines the terms of the ESOP, including how shares will be allocated and vested.
- Establish a Trust: Set up an ESOP trust to hold the company stock on behalf of employees.
- Communicate with Employees: Update 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 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 combining resources with other employers, businesses can cut administrative costs and fees associated with maintaining a retirement plan. This cost-sharing makes MEPs an appealing option for small businesses looking to save on expenses.
- Administrative Efficiency: MEPs streamline the management of retirement plans by centralizing 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 set up a retirement plan on their own can provide competitive retirement benefits, helping to attract and retain talented employees and provide a competitive advantage in hiring they otherwise may not have had.
- Fiduciary Relief: The MEP sponsor typically assumes most of the fiduciary responsibilities, lessening 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 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: Inform 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, filing necessary forms, 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 advantages, 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.
Benefits of Setting Up a Small Business Retirement Plan in Charlotte, NC
The specific, financial-based advantages to your Charlotte, NC small business retirement plan is dependent upon which plan you choose. That said, 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. Below are some of the main benefits for both businesses and employees of setting up a small business retirement plan:
Employee Benefits
- Improved confidence in their retirement planning
- Reduced taxable income
- Contributions can be easily made through salary deferral
- They do not pay taxes on money they put in or how the money grew until they take them out
- Over the years small contributions grow into significant savings
- Ability to perform a 401(k) rollover if they change employers
Business Benefits
- Attract, recruit, and retain talent
- Incentivize based on performance-based employer contributions
- Employer contributions are tax-deductible
- Flexible plan options to fit your plan to your needs
- Tax credits that can help reduce startup costs
Do I Need a Financial Advisor in Charlotte, NC to Help With My Small Business Retirement Plan?
Creating small business retirement plans is far different from setting up a personal savings plan at your local Charlotte, NC bank. While the federal government does not currently obligate any company to offer retirement savings options to workers, certain states require employers with a minimum number of employees to have a retirement plan. Charlotte, NC retirement consultants that have spent years helping business owners open retirement plans are usually needed to not only make sure you get the benefits you're looking for, but that you abide by frequently chancing tax and business laws.
As your Charlotte, NC retirement plan consultants for your small business, our team will:
- Help you decide the best plan for you, 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 retirement, and developing 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 success
Correct Capital's Charlotte, NC financial planners are fiduciary advisors, meaning we are obligated, by law and by regulatory oversight to do what's best for you and your employees. The only product we offer is trust. 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 are unwilling to set up retirement plans due to the assumed high costs.
Solution:
- SIMPLE IRA and SEP IRA: These plans have decreased 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 challenges 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 paperwork, compliance, and record-keeping tasks. Providers offer comprehensive administrative support, including payroll processing and fiduciary responsibilities.
- Multiple Employer Plans (MEPs): Being part of 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: Using 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 raise 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.
Problem 4: Adhering to Regulations
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. 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 adapt 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 Charlotte, 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 Charlotte, 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 Charlotte, 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 Charlotte, NC | Correct Capital
Operating a small business comes with a plethora of moving parts and 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 we can do for business owners, call Correct Capital today at 314-930-401K or contact us online.
*as of March 2024
