Small Business Retirement Plans in Charlotte, NC. Starting up a retirement plan for you and your Charlotte, NC employees is a great way to retain talent, incentivize higher performance, and get those much-desired tax breaks. However, many business owners understandably have questions about small business retirement plans. What type of plan is best for your business? What are the different laws that apply to different plans? What happens when a new plan seems like a better option, or if I'm closing my business? Correct Capital's team of Charlotte, NC financial planners is dedicated to helping business owners and their employees get the most out of their retirement plans and navigate the specifics of federal regulations. Whether you already have a plan and want insight as to how it's performing or need to set up a plan, call 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?
The federal government and various financial custodians offer a wide array of savings plans and accounts for small business owners and their employees in preparation for retirement. The most prevalent ones are:
SEP-IRA
This variant of individual retirement account is available to single-owner 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 without taxes. Employers can deduct contributions they make on behalf of their employees. Only employers make contributions, which are adjustable and can vary from year to year. Additionally, the contributions are deductible from taxes.
Benefits of a SEP-IRA
- High Contribution Limits: Employers can contribute up to 25% of each employee’s compensation, with a maximum of $69,000 for 2024.
- Flexibility: This plan does not require employers to contribute annually, which is perfect for businesses with variable profits.
- Simple Administration: This plan requires minimal paperwork and has no need for yearly filings with the IRS except for regular tax filings.
Setting Up a SEP-IRA
- Select a Financial Institution: To hold SEP IRA assets, select an institution for instance a bank, brokerage firm, or credit union. Alternatively, an online financial institution.
- Execute a Written Agreement: Inform eligible employees by establishing a contractual arrangement for the SEP IRA plan.
- Make Contributions: Calculate and make contributions based on a fixed percentage of each employee’s compensation. Alternatively, deposit funds based on a percentage range determined by business earnings.
- Maintain Records: Keep complete records of all contributions made to employee accounts, including dates and sums. Additionally, ensure records are neatly arranged and easily accessible for inspection 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 fund their own accounts through payroll deductions, and employers can also contribute. This plan is affordable as it's mainly funded by employees, and their contributions can be tax deductible.
Benefits of a SIMPLE IRA
- Ease of Setup and Administration: SIMPLE IRAs are straightforward to establish and maintain, with no annual filing requirements for employers. This makes them suitable for small businesses with restricted administrative resources.
- Employer Contributions: Employers are required to make contributions, by either 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 financial institution, 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 information on how to participate and the benefits provided.
- Employee Enrollment: Assist employees in establishing 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 exclusively for owner-only 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 yearly cap. While this plan is highly customizable and allows for significant contributions, there may be beginning expenditures 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 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-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: Ensure compliance by filing IRS Form 5500 annually to report on the plan’s status.
- Permanence: A defined benefit plan should be maintained for five years. Quickly terminated plans often serve as signals and may attract regulatory scrutiny.
401(k) Plans
401(k)s are available to businesses 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 can be made before taxes, which reduces the employee’s taxable income. Alternatively, post-tax (Roth) contributions can be made. Investments grow tax-free until withdrawn.
- Employer Matching: Many employers offer matching contributions, which can significantly boost an employee's retirement savings.
- Higher Contribution Limits: For this year, employees can contribute up to $$23k, 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 unexpected expenses.
Setting Up a 401(k) Plan
- Choose a Plan Provider: Choose a provider that offers various investment choices, administrative services, and staff training.
- 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 preserve them for participants.
- Develop a Recordkeeping System: Develop a meticulous record system 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 business 401(k), this plan is also known as a Solo 401(k). It is ideal for individuals who are self-employed, 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: Choose a financial institution or brokerage that offers Individual 401(k) plans. Search for providers with multiple investment options and minimal fees.
- Create a Plan Document: Prepare the terms of your plan, including contribution limits, investment options, and loan provisions.
- Open an Account: Establish 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 $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 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 incentivize them to enhance 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 $66,000 for 2024, making it a generous option for employee benefits.
Setting Up a Profit Sharing Plan
- Choose a Plan Provider: Pick a financial institution 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: Advise 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 pension scheme that invests mainly in the employer's stock. ESOPs provide employees with an ownership stake in the company, aligning their interests with the business's success, and potentially aiding in establishing the business's future leadership.
Benefits of an ESOP
- Employee Ownership: ESOPs offer employees with an ownership stake in the company, which can increase motivation and dedication.
- Tax Benefits for the Company: Contributions to the ESOP are deductible from taxes, and the company can also obtain tax benefits pertaining to the sale of stock to the ESOP.
- Retirement Savings for Employees: Employees profit from the growth in the value of the company’s stock, providing potentially considerable retirement savings.
- Succession Planning: ESOPs can be an effective tool for business succession, enabling owners to sell their shares to high-performing employees, who can steadily take the lead as previous owners move into retirement.
Setting Up an ESOP
- Feasibility Study: Execute a feasibility study to determine if an ESOP is a appropriate option for your company.
- Hire ESOP Advisors: Bring on board financial, legal, and ESOP advisors to help with the setup process.
- Create a Plan Document: Write a plan document that specifies the terms of the ESOP, including how shares will be apportioned and vested.
- Establish a Trust: Create an ESOP trust to hold the company stock on behalf of employees.
- Communicate with Employees: Brief employees about the ESOP, how it works, and the advantages 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 join 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 pooling resources with other employers, businesses can lower administrative costs and fees associated with maintaining a retirement plan. This cost-sharing makes MEPs an attractive option for small businesses looking to save on expenses.
- Administrative Efficiency: MEPs ease the management of retirement plans by consolidating administrative tasks. This includes plan setup, compliance, reporting, and participant communication, which are handled by the MEP sponsor or administrator.
- Improved Access to Benefits: An MEP allows small businesses that might not have the resources to offer a retirement plan on their own can deliver competitive retirement benefits, which helps to attract and retain talented employees and give 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 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 completing 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, 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.
Why You Should Set Up a Small Business Retirement Plan in Charlotte, NC
The specific, financial-based benefits for your Charlotte, NC small business retirement plan is dependent upon which plan you choose. That said, there are many general benefits of setting up a small business retirement plan for both businesses and workers. 60% of workers say that a retirement plan 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 having a small business retirement plan:
Employee Benefits
- More confidence in their retirement planning
- Reduced taxable income
- Contributions are simple with salary deferral
- Contributions and investment gains are not taxed until they take them out
- Over the years small savings grow into considerable 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 upon initial set-up
Do I Need a Financial Advisor in Charlotte, NC to Assist With My Small Business Retirement Plan?
Opening small business retirement plans is complicated. While the federal government does not currently require any company to offer retirement savings options to workers, certain states require businesses with a minimum number of employees to have a retirement plan. Charlotte, NC retirement consultants that have spent years helping business owners set up retirement plans are usually needed to not only ensure you and your employees get the most out of your plan, but that you abide by evolving tax and business laws.
As your Charlotte, NC retirement plan consultants for your small business, our financial planners 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, establishing a trust for plan assets, helping employees understand the plan's terms, and creating a record keeping system
- Help you operate your plan by adapting as we need to to 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 important aspect of their continued financial success
Correct Capital's Charlotte, NC advisors hold ourselves to the fiduciary standard, meaning we are legally and ethically bound 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. Request a consultation 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 reluctant to set up retirement plans due to the expected high costs.
Solution:
- SIMPLE IRA and SEP IRA: These plans have minimal 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 documentation, compliance, and record-keeping tasks. Providers offer comprehensive administrative support, including integration with payroll and fiduciary services.
- 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 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.
Challenge 4: Compliance with Regulations
Navigating 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 change with 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 Charlotte, NC 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 Charlotte, NC include:
- 401(k) Audit
- High-Net-Worth Wealth Management
- Retirement Planner
- Financial Planning
- Retirement Plan Consultants
- Fiduciary Financial Advisor
Small Business Retirement Plans in Charlotte, NC | Correct Capital
Owning a small business involves a mountain 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* 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 online.
*as of March 2024