Small Business Retirement Plans in Corpus Christi, TX

Small Business Retirement Plans in Corpus Christi, TX. Offering a retirement plan to your Corpus Christi, TX employees offers a variety of benefits, including tax reductions and a great way to attract and retain talent. 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 I'll have to follow? What happens when a new plan seems like a better option, or if I'm closing my business? Correct Capital's team of Corpus Christi, TX financial planners is dedicated to helping business owners and their employees get the most out of their retirement plans and navigate the complexity of their individual plans and benefits. Whether you already have a plan and want insight as to how it's performing 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 online.

What Types of Retirement Plans Are Available to Small Businesses in Corpus Christi, TX?

The federal government and various financial custodians offer numerous investment options and accounts for small business owners and their employees to better prepare for retirement. The most prevalent ones are:

SEP-IRA

This kind of individual retirement account is available to single-owner 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 payments, which are modifiable and can vary year-to-year. Additionally, the contributions are eligible for tax deduction.

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: Employers are not required to contribute annually, making it suitable for businesses with changing profits.
• Simple Administration: With this plan, there is minimal paperwork and no need for yearly filings with the IRS except for 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 digital financial institution.
• Execute a Written Agreement: Communicate with eligible employees by establishing a contractual arrangement for the SEP IRA plan.
• Make Contributions: To make contributions, calculate a predetermined percentage of each employee’s compensation or make payments based on a percentage range.
• Maintain Records: Maintaining records involves keeping comprehensive records of all contributions made to employee accounts, including time stamps and amounts. Additionally, ensure records are well-organized 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 payroll deductions, and employers can also make contributions. 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 need for yearly filings 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 immediately 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, mutual 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 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 a maximum limit set each year. While this plan is highly customizable and allows for significant contributions, there may be beginning expenditures 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 $$275k 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 a financial institution 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 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: A defined benefit plan should be maintained for five years. Quickly terminated plans often serve as indicators and may attract regulatory scrutiny.

401(k) Plans

401(k)s are available to companies of any size, and are highly tailorable. 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 tax-free until withdrawn.
• Employer Matching: Many employers offer contribution matching, which can significantly boost an employee's retirement savings.
• Higher Contribution Limits: For 2024, employees can contribute up to $23,000, with an additional $$7.5k 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 a range of investment choices, management assistance, and employee learning resources.
• Create a Plan Document: Draft 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 secure 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 changes in a timely manner.

Individual 401(k)

Also known as a i401(k), this plan is designed to offer the same benefits as a business 401(k), but 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 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 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: Pick a financial institution or brokerage that offers Individual 401(k) plans. Seek out providers with multiple investment options and lower fees.
• Create a Plan Document: Draft 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 submitting an application and providing necessary documentation.
• Make Contributions: Set 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. 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 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 fluctuating earnings.
• Tax Advantages: Contributions are tax-deductible for the business, reducing taxable income. Additionally, the funds grow without immediate tax, 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 $sixty-six thousand dollars for 2024, making it a beneficial 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 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.

Benefits of an ESOP

• Employee Ownership: ESOPs grant employees with an partial ownership in the company, which can enhance drive and loyalty.
• Tax Benefits for the Company: Contributions to the ESOP are tax-deductible, and the company can also gain tax benefits pertaining to the sale of stock to the ESOP.
• Retirement Savings for Employees: Employees gain from the growth in the value of the company’s stock, granting potentially significant retirement savings.
• Succession Planning: ESOPs can be an effective tool for business succession, allowing owners to sell their shares to high-performing employees, who can steadily take the lead as previous owners ease into retirement.

Setting Up an ESOP

• Feasibility Study: Conduct a feasibility study to determine if an ESOP is a suitable option for your company.
• Hire ESOP Advisors: Retain financial, legal, and ESOP advisors to guide the setup process.
• Create a Plan Document: Prepare a plan document that defines the terms of the ESOP, including how shares will be assigned and vested.
• Establish a Trust: Initiate an ESOP trust to hold the company stock on behalf of employees.
• Communicate with Employees: Advise employees about the ESOP, how it works, and the benefits they can expect.
• Compliance and Reporting: File 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 take part 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 cut 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 streamline 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: Businesses with limited resources to provide a retirement plan on their own can offer competitive retirement benefits through an MEP., 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 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: Communicate 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 benefits and drawbacks 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 respected 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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Benefits of Setting Up a Small Business Retirement Plan in Corpus Christi, TX

The particular, financial-based benefits for your Corpus Christi, TX small business retirement plan is dependent upon which plan you set up. That said, there are many general benefits of setting up a small business retirement plan for both businesses and workers. Over half of employees responded to a survey stating it is a "very important" factor in how good they feel at their present employment, while employers reap the benefits both during tax season and in office productivity. Companies and employees will both enjoy:

Why Should I Consult With a Financial Advisor in Corpus Christi, TX to Assist With My Small Business Retirement Plan?

Creating small business retirement plans is not the same thing as setting up a personal savings plan at your local Corpus Christi, TX bank. While the federal government does not currently obligate any employer to offer retirement savings options to workers, certain states require employers of a certain size to have a retirement plan. Corpus Christi, TX retirement consultants that are experienced in helping business owners create retirement plans are usually needed to not only make sure the plan is right for you, but that you abide by evolving tax and business laws.

As your Corpus Christi, TX retirement plan consultants for your small business, our financial planners will:

• Help you decide the "right" plan for you, and which financial institution should hold the assets
• Assist you in setting up your plan, including creating a document that complies with IRS code, 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 staying compliant with applicable 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 Corpus Christi, TX 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. Schedule 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 assumed 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 administrative burden 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): 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 boost 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

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. 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: Select 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 support of dedicated Corpus Christi, TX 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 Corpus Christi, TX include:

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

Small Business Retirement Plans in Corpus Christi, TX | Correct Capital

Operating a small business comes with countless 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 other services we offer to business owners, speak to a financial advisor at Correct Capital today at 314-930-401K or contact us online.

*as of March 2024