Small Business Retirement Plans in El Paso, TX

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Small Business Retirement Plans in El Paso, TX. Setting up a retirement plan for you and your El Paso, TX employees is a great way to retain talent, incentivize higher performance, and get those much-needed 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 retiring and my business will no longer be running? Correct Capital's team of El Paso, TX financial planners has over 70 years of combined experience 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're interested in modifying an existing plan or are looking to create an entirely new one, speak to a financial advisor at Correct Capital today at 314-930-401K or contact us online.



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What Types of Retirement Plans Are Available to Small Businesses in El Paso, TX?

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 owner-only 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 payments, which are adjustable and can vary annually. Additionally, the contributions are deductible from taxes.

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 annually, making it ideal for businesses with fluctuating profits.
  • Simple Administration: With this plan, there is minimal paperwork and no annual filing requirements with the IRS except for regular tax filings.

Setting Up a SEP-IRA

  • Select a Financial Institution: Choose a provider to hold SEP IRA assets, like a bank, brokerage firm, or credit union. Alternatively, opt for an online financial institution.
  • Execute a Written Agreement: Communicate with eligible employees by establishing a plan document for the SEP IRA plan.
  • Make Contributions: To make contributions, calculate a predetermined percentage of each employee’s compensation. Alternatively, deposit funds based on a range of percentages determined by business performance.
  • Maintain Records: Keep complete records of all contributions made to employee accounts, including time stamps and amounts. 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 a maximum of 100 employees. Employees can make contributions to their own accounts through deductions from their salaries, and employers can also make contributions. 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 perfect for small businesses with limited 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 a supplementary 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, 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 establishing their accounts and making their contributions.
  • Employer Contributions: Decide whether to match up employee contributions or make non-elective contributions, and ensure these are made in a timely manner.

Personal Defined Benefit Plan

This plan is exclusively for single-owner 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 yearly cap. While this plan is highly customizable and allows for significant contributions, there may be startup costs 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 plans.
  • 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 contribution requirements and how benefits are calculated.
  • 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 signals and may attract regulatory scrutiny.

401(k) Plans

401(k)s are available to corporations of any size, and are highly customizable. Employees may postpone 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:

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 this year, 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 financial emergencies.

Setting Up a 401(k) Plan

  • Choose a Plan Provider: Pick a provider that offers various investment opportunities, administrative support, and employee education.
  • Create a Plan Document: Outline the terms of the plan, including eligibility, contributions, and how funds are vested.
  • Set Up a Trust: Ensure plan assets are held in trust to secure 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 modifications 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 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 nonelective 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 multiple investment options and lower fees.
  • Create a Plan Document: Create 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: 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. Develop a meticulous record system 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 motivate 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 adaptable option for businesses with variable 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 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 a quarter of an employee’s compensation or $$66k for this year, making it a beneficial option for employee benefits.

Setting Up a Profit Sharing Plan

  • Choose a Plan Provider: Choose a investment firm 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: 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 retirement plan that invests primarily in the employer's stock. ESOPs provide employees equity in the company, matching their interests with the business's success, and potentially preparing the business's upcoming generation of leadership.

Benefits of an ESOP

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

Setting Up an ESOP

  • Feasibility Study: Perform a feasibility study to determine if an ESOP is a viable option for your company.
  • Hire ESOP Advisors: Hire financial, legal, and ESOP advisors to aid in the setup process.
  • Create a Plan Document: Draft a plan document that specifies the terms of the ESOP, including how shares will be allocated and vested.
  • Establish a Trust: Initiate 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 perks they can expect.
  • Compliance and Reporting: Send in necessary documents with the IRS and the Department of Labor, including Form 5500, to ensure compliance.

Multiple Employer Plans (MEPs)

A Multiple Employer Plan (MEP) is a type of retirement plan that allows multiple, unrelated employers to participate in a single retirement plan and achieve economies of scale. MEPs are designed to provide small businesses with a economical 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 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: 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 can help 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 participate in 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 an investment firm 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, filing necessary forms, 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 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 El Paso, TX

The particular, financial-based benefits for your El Paso, TX small business retirement plan is dependent upon which plan you choose. However, a small business retirement plan, whichever one you choose, benefit employers and employees in the same way. 60% of workers say that a retirement plan is a "very important" factor in how good they feel at their present employment, while employers also get tax breaks and can better attract and motivate employees. Below are some of the main benefits for both businesses and employees of having a small business retirement plan:


Employee Benefits

  • More confidence in their retirement planning
  • Reduced taxable income
  • Contributions can be easily made through payroll deductions
  • Contributions and investment gains are not taxed until distributed
  • Over the years small contributions grow into significant sums of money
  • Ability to conduct a 401(k) rollover if they change employers

Business Benefits

  • Attract, recruit, and retain talent
  • Promote great work ethic
  • Deduct your taxable income from your taxable profits
  • Highly customized plans are available
  • Tax credits upon initial set-up

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

Creating small business retirement plans is complicated. While the federal government does not currently require any business to offer a retirement plan to employees, certain states require employers with a certain number of employees to offer access to a retirement plan. El Paso, TX retirement consultants that are experienced in helping business owners create retirement plans are usually needed to not only ensure you get the benefits you're looking for, but that you follow ever-changing tax and business laws.

As your El Paso, TX retirement plan consultants for your small business, our financial planners will:

  • Help you elect which plan works best for you and your employees, and the right custodian to hold plan assets
  • Assist you in setting up your plan, including creating a document that complies with IRS code, arranging a trust for plan assets, helping employees understand how specific of the plan apply to their savings, and developing 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 part of their continued financial health

Correct Capital's El Paso, TX advisors hold ourselves to the fiduciary standard, meaning we are legally and ethically obligated to only offer advice based on what we believe is in your best interest. 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 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 documentation, compliance, and record-keeping tasks. Providers offer comprehensive administrative support, including payroll integration 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

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. Offer 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

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

Solution:

  • Professional Guidance: Hiring a financial advisor or consultant who specializes in retirement plans can help ensure compliance with ERISA, IRS, and Department of Labor regulations. Correct Capital 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: Choose 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 El Paso, 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 El Paso, TX include:

Small Business Retirement Plans El Paso, TX | Financial Advisors | Retirement Consultants Near El Paso

Small Business Retirement Plans in El Paso, TX | Correct Capital

Operating a small business involves 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 in both small and large companies, and represents over $212 million in total plan assets* throughout the country. 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

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