Small Business Retirement Plans in Joliet, IL

Small Business Retirement Plans in Joliet, IL. Setting up a retirement plan for you and your Joliet, IL employees is a great way to retain talent, boost performance, and get those much-needed tax reductions. However, for most business owners, it can be difficult to know how to proceed once they decide to establish one. What benefits do different kinds of plans provide? What federal regulations do I have to follow? What do I do when I want to change plans, or if I'm retiring and my business will no longer be running? Correct Capital's team of Joliet, IL financial planners is committed to helping business owners and their employees get the most out of having a sound retirement plans and understanding the complexity of federal regulations. For anything from initial setup and employee guidance to making annual adjustments, speak to a financial advisor at Correct Capital today at 314-930-401K or contact us through our website.

What Types of Retirement Plans Are Available to Small Businesses in Joliet, IL?

The federal government provides a variety of savings plans and savings vehicles 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 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 deposits, which are adjustable and can vary from year to year. Additionally, the contributions are tax-deductible.

Benefits of a SEP-IRA

• High Contribution Limits: Employers have the ability to contribute up to 25% of each employee’s compensation, with the maximum set at $69,000 for 2024.
• Flexibility: Employers are not required to contribute every year, making it perfect 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: Choose a provider to hold SEP IRA assets, for instance 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 written agreement for the SEP IRA plan.
• Make Contributions: Contributions can be made by calculating a fixed percentage of each employee’s compensation. Alternatively, deposit funds based on a percentage range determined by business performance.
• Maintain Records: Keep detailed records of all contributions made to employee accounts, including time stamps and sums. Additionally, ensure records are neatly arranged and easily accessible for review purposes.

SIMPLE IRA

"SIMPLE" stands for "Savings Investment Match Plan for Employees," and these IRAs are for businesses with as many as 100 employees. Employees can make contributions to their own accounts through payroll deductions, and employers can also make contributions. This plan is inexpensive 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 simple to establish and maintain, with no need for yearly filings for employers. This makes them perfect 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 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 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 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 timely.

Personal Defined Benefit Plan

This plan is exclusively 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 $two hundred seventy-five thousand dollars 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 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 financial institution or retirement plan provider that specializes in defined benefit plans to establish the plan.
• Create a Plan Document: Draft a written plan 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: To manage the plan’s investments, ensure that required contributions are made annually and conduct annual actuarial reviews 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 at least five years. Quickly terminated plans often serve as red flags and may attract regulatory scrutiny.

401(k) Plans

401(k)s are available to companies of any size, and are highly adaptable. 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 are made pre-tax, reducing the employee’s taxable income. Alternatively, contributions can be made post-tax (Roth). Investments grow tax-deferred.
• Employer Matching: Many employers offer contribution matching, which can significantly boost an employee's retirement savings.
• Higher Contribution Limits: For this year, employees can contribute up to $23,000, with an additional $7,500 catch-up contribution for those aged 50 and older.
• Loan Options: Participants can often take loans against their 401(k) balance, providing flexibility in case of financial emergencies.

Setting Up a 401(k) Plan

• Choose a Plan Provider: Pick a provider that offers multiple investment choices, administrative services, 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 safeguard them for participants.
• Develop a Recordkeeping System: Ensure detailed records of contributions, earnings, and distributions.
• Distribute Plan Information: Employers sponsoring a 401(k) must distribute plan information and changes in a timely manner.

Individual 401(k)

This plan, also known as a i401(k), is designed to provide the same benefits as a business 401(k), but specifically for individuals who are sole proprietors, or whose only employee is their spouse. Each year, you can contribute up to the annual 401(k) limit, and the employer may make a non-elective contribution up to a quarter 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. Additionally, you have the option 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 reduced fees.
• Create a Plan Document: Draft the terms of your plan, including contribution limits, investment options, and loan provisions.
• Open an Account: Set up your Individual 401(k) account with the chosen provider. This typically involves 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 $250,000, you must file IRS Form 5500 annually. Maintain precise records of all contributions and transactions.

Profit Sharing Plans

A Profit Sharing Plan is a type of retirement plan where employers can make 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 boost the company’s profitability.

Benefits of a Profit Sharing Plan

• Flexibility in Contributions: Employers can decide 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 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 one-fourth of an employee’s compensation or $66,000 for the current year, making it a advantageous option for employee benefits.

Setting Up a Profit Sharing Plan

• Choose a Plan Provider: Pick a investment firm 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: Educate 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 primarily invests in the employer's stock. ESOPs offer employees equity in the company, aligning their interests with the business's success, and potentially helping establish the business's next generation of leadership.

Benefits of an ESOP

• Employee Ownership: ESOPs provide employees with an partial ownership in the company, which can increase motivation and dedication.
• Tax Benefits for the Company: Contributions to the ESOP are tax-deductible, and the company can also receive tax benefits associated with the sale of stock to the ESOP.
• Retirement Savings for Employees: Employees profit from the growth in the value of the company’s stock, providing 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 gradually 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 viable option for your company.
• Hire ESOP Advisors: Bring on board financial, legal, and ESOP advisors to guide the setup process.
• Create a Plan Document: Write a plan document that details the terms of the ESOP, including how shares will be allocated and vested.
• Establish a Trust: Establish an ESOP trust to hold the company stock on behalf of employees.
• Communicate with Employees: Inform employees about the ESOP, how it works, and the advantages 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 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 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 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: Small companies lacking resources to offer a retirement plan on their own can deliver competitive retirement benefits through an MEP., which helps to attract and retain talented employees and offer a competitive advantage in hiring they otherwise may not have had.
• Fiduciary Relief: The MEP sponsor typically assumes most of the fiduciary responsibilities, reducing 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, filing necessary forms, and managing plan assets.

There are advantages and disadvantages to each plan, and which may be "best" for you will depend on your business and your and your employees' needs. Different plans and accounts have different tax 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.

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Why You Should Set Up a Small Business Retirement Plan in Joliet, IL

The specific, financial-based advantages to your Joliet, IL small business retirement plan is dependent upon which plan you set up. However, there are many general benefits of setting up a small business retirement plan for both businesses and workers. Three out of five employees responded to a survey saying it 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 setting up a small business retirement plan:

Do I Need a Financial Advisor in Joliet, IL to Assist With My Small Business Retirement Plan?

Creating small business retirement plans is far different from setting up a personal savings plan at your local Joliet, IL bank. While the federal government does not currently require any employer to offer retirement savings options to employees, certain states require businesses of a certain size to offer access to a retirement plan. Joliet, IL retirement consultants that are experienced in helping business owners open retirement plans are usually needed to not only make sure you get the benefits you're looking for, but that you abide by ever-changing tax and business laws.

As your Joliet, IL retirement plan consultants for your small business, our team will:

• Help you choose which plan works best for you and your employees, 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 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 ongoing financial journey

Correct Capital's Joliet, IL financial planners are fiduciary advisors, meaning we are obligated, by law and by regulatory oversight to only work in your best interest. 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 hesitate 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, 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 processing 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

Limited employee involvement can limit the effectiveness of a retirement plan.

Solution:

• Automatic Enrollment: Using automatic enrollment can significantly increase participation rates. Employees are automatically enrolled at a default contribution rate but can opt out if they choose. This approach has been shown to 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.

Problem 4: Adhering to Regulations

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. 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: 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. Modify the plan as necessary to align with changes in your business environment and workforce demographics.

With the help of dedicated Joliet, IL 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 Joliet, IL include:

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

Small Business Retirement Plans in Joliet, IL | Correct Capital

Owning a small business comes with a plethora of daily, monthly, and annual tasks to ensure things run smoothly — setting up and maintaining a small business retirement plan shouldn't be one of them. Correct Capital currently manages over 37 plans for a variety of types of businesses, and represents over $212 million in total plan assets* nationwide. To set up a retirement plan for your small business, or learn what other services we offer to 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