Small Business Retirement Plans in Grand Rapids, MI

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Small Business Retirement Plans in Grand Rapids, MI. Offering a retirement plan to your Grand Rapids, MI employees is a great way to retain talent, incentivize higher performance, and get those much-desired tax reductions. However, many business owners understandably have questions about small business retirement plans. What benefits do different kinds of plans provide? What federal regulations do I have to follow? What do I do when a new plan seems like a better option, or if I'm closing my business? Correct Capital's team of Grand Rapids, MI financial planners is dedicated to helping business owners and their employees get the most out of their retirement plans and understanding the complexity of federal regulations. For anything from initial setup and employee education to fine-tuning an existing plan, speak to a financial advisor at Correct Capital today at 314-930-401K or contact us online.



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What Types of Retirement Plans Are Available to Small Businesses in Grand Rapids, MI?

Small business owners and their employees are offered retirement plans through the federal government and various financial custodians in anticipation of 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 identical rules as a traditional IRA, where the money put into the account grows without taxes. Employers can deduct contributions they make on behalf of their employees. Only employers make contributions, which are adjustable and can vary annually. 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 each year, making it suitable for businesses with fluctuating 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: To hold SEP IRA assets, select an institution like a bank, brokerage firm, or credit union. Alternatively, an online financial institution.
  • Execute a Written Agreement: Establish a plan document and inform eligible employees of the SEP IRA plan.
  • Make Contributions: Based on business performance, contributions can be made by a fixed percentage of each employee’s compensation or contribute based on a range of percentages.
  • Maintain Records: Maintaining records involves keeping detailed records of all contributions made to employee accounts, including time stamps and amounts. Additionally, ensure records are neatly arranged and easily accessible for audit purposes.

SIMPLE IRA

"SIMPLE" stands for "Savings Investment Match Plan for Employees," and these IRAs are for businesses with a maximum of 100 employees. Employees can fund their own accounts through salary deferrals, 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 easy to establish and maintain, with no annual filing requirements for employers. This makes them suitable for small businesses with constrained 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 instantly 100% vested, meaning employees have full ownership of all funds in their accounts as soon as contributions are made.

Setting Up a SIMPLE IRA

  • Select a Financial Institution: Choose a financial institution, 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 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 up employee contributions or make non-elective contributions, and ensure these are made promptly.

Personal Defined Benefit Plan

This plan is exclusively for single-owner 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 startup costs and recurring costs associated with it.

Benefits of a Personal Defined Benefit Plan

  • High Contribution Limits: Allows for significantly higher contributions compared to other retirement plans, potentially reaching $$275k annually (in the current year) 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 401(k)s.
  • 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 specializes in 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, ensuring compliance with 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: To ensure compliance, a defined benefit plan must be in place for a minimum of five years. Plans that are quickly terminated can be indicators and subject to regulatory scrutiny.

401(k) Plans

401(k)s are available to firms 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:

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 contribution matching, which can significantly boost an employee's retirement savings.
  • Higher Contribution Limits: For the current year, employees can contribute up to $23,000, with an additional $seven thousand five hundred dollars 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 a range of investment options, management assistance, and employee education.
  • Create a Plan Document: Draft the terms of the plan, including eligibility, contributions, and vesting schedules.
  • Set Up a Trust: Ensure plan assets are held in trust to safeguard them for participants.
  • Develop a Recordkeeping System: Keep accurate records of contributions, earnings, and distributions.
  • Distribute Plan Information: Employers sponsoring a 401(k) must distribute plan information and modifications in a timely manner.

Individual 401(k)

Designed to offer the same benefits as a business 401(k), this plan is also known as a Solo 401(k). It is ideal for individuals who are independent contractors, or whose only employee is their spouse. Each year, you can contribute up to the annual 401(k) limit, and the employer may make a 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 lower 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 completing 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. 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 encourage them to boost the company’s profitability.

Benefits of a Profit Sharing Plan

  • Flexibility in Contributions: Employers can choose each year how much to contribute based on the company's profitability. This makes it an versatile option for businesses with fluctuating 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 one-fourth of an employee’s compensation or $sixty-six thousand dollars for this year, making it a advantageous 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: Develop a plan document outlining the profit-sharing formula, eligibility requirements, and vesting schedule.
  • Communicate with Employees: Inform 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 annually to report the plan’s status and compliance.

Employee Stock Ownership Plan (ESOPs)

An Employee Stock Ownership Plan (ESOP) is a retirement plan that invests primarily in the employer's stock. ESOPs give employees ownership interest in the company, aligning their interests with the business's success, and potentially helping set up the business's next generation of leadership.

An Employee Stock Ownership Plan (ESOP) is a retirement plan that invests primarily in the employer's stock. ESOPs grant employees a stake in the company, aligning their goals with the business's success, and potentially helping set up the business's next generation of leadership.

Benefits of an ESOP

  • Employee Ownership: ESOPs offer employees with an equity share in the company, which can heighten incentive and commitment.
  • Tax Benefits for the Company: Contributions to the ESOP are tax-deductible, and the company can also obtain tax benefits related to the sale of stock to the ESOP.
  • Retirement Savings for Employees: Employees benefit from the growth in the value of the company’s stock, granting potentially considerable retirement savings.
  • Succession Planning: ESOPs can be an effective strategy for business succession, permitting 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: Conduct a feasibility study to determine if an ESOP is a suitable option for your company.
  • Hire ESOP Advisors: Hire financial, legal, and ESOP advisors to help with the setup process.
  • Create a Plan Document: Develop a plan document that defines 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: Advise 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 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 decrease administrative costs and fees associated with maintaining a retirement plan. This cost-sharing makes MEPs an advantageous option for small businesses looking to save on expenses.
  • Administrative Efficiency: MEPs simplify 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: Businesses with limited resources to offer a retirement plan on their own can provide competitive retirement benefits through an MEP., helping to attract and retain talented employees and create a competitive advantage in hiring they otherwise may not have had.
  • Fiduciary Relief: The MEP sponsor typically assumes most of the fiduciary responsibilities, decreasing the liability and administrative burden on individual employers.

Setting Up an MEP

  • Join an Existing MEP or Form a New One: Small businesses can either 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 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, 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 trusted 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 Grand Rapids, MI

The specific, financial-based advantages to your Grand Rapids, MI small business retirement plan will largely be based on the specific plan you choose. That said, a small business retirement plan, whichever one you choose, benefit employers and employees in the same way. 60% of workers responded to a survey saying 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:


Employee Benefits

  • More financial security in retirement
  • Tax deductions
  • Contributions are simple with payroll deductions
  • 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 it's beneficial down the road

Business Benefits

  • Attract, recruit, and retain talent
  • Promote great work ethic
  • Deduct your taxable income from your taxable income
  • Flexible plan options to fit your plan to your needs
  • Tax credits upon initial set-up

Why Should I Consult With a Financial Advisor in Grand Rapids, MI to Assist With My Small Business Retirement Plan?

Creating small business retirement plans is complicated. While the federal government does not currently require any company to offer retirement savings options to employees, certain states require employers with a certain number of employees to offer access to a retirement plan. Grand Rapids, MI retirement consultants that have spent years helping business owners create retirement plans are usually needed to not only make sure you get the benefits you're looking for, but that you follow ever-changing tax and business laws.

As your Grand Rapids, MI retirement plan consultants for your small business, our advisers will:

  • Help you elect the best plan for you, 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 the plan's terms, and developing 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 they can use it as a component to their ongoing financial health

Correct Capital's Grand Rapids, MI advisors hold ourselves to the fiduciary standard, meaning we are obligated, by law and by ethics to only work in your best interest. We work for you, and not our own firm. 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 hesitate to set up retirement plans due to the assumed high costs.

Solution:

  • SIMPLE IRA and SEP IRA: These plans have lower 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, with an additional credit for automatic enrollment plans.

Challenge 2: Administrative Complexity

The complexity of maintaining a retirement plan can be daunting for small business owners.

Solution:

  • Outsource Administration: Many plan providers offer administrative services that can handle the majority of the administrative tasks, compliance, and record-keeping tasks. Providers offer comprehensive administrative support, including payroll integration and fiduciary management.
  • 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: 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 increase 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.

Problem 4: Adhering to 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 adjust to 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 assistance of dedicated Grand Rapids, MI 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 Grand Rapids, MI include:

Small Business Retirement Plans Grand Rapids, MI | Financial Advisors | Retirement Consultants Near Grand Rapids

Small Business Retirement Plans in Grand Rapids, MI | 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 doesn't have to 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 we can do for business owners, speak to a financial advisor at Correct Capital today at 314-930-401K or contact us through our website.

*as of March 2024

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