Small Business Retirement Plans in New Orleans, LA

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Small Business Retirement Plans in New Orleans, LA. Offering a retirement plan to your New Orleans, LA employees offers a variety of benefits, including tax reductions and a great way to attract and retain your highest-performing workers. 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 happens when a new plan seems like a better option, or if I'm closing my business? Correct Capital's team of New Orleans, LA financial planners is dedicated to helping business owners and their employees get the most out of having a sound retirement plans and navigate the specifics of federal regulations. For anything from initial setup and employee education to making annual adjustments, call 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 New Orleans, LA?

Retirement plans and accounts are offered to small business owners and their employees by the federal government and various financial custodians in anticipation of retirement. The most prevalent ones are:


SEP-IRA

This kind of individual retirement account is available to self-employed 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 tax-deferred. Employers can deduct contributions they make on behalf of their employees. Only employers make payments, which are adjustable and can vary year-to-year. Additionally, the contributions are deductible from taxes.

Benefits of a SEP-IRA

  • High Contribution Limits: Employers can contribute up to 25% of each employee’s compensation, with a maximum of $69,000 for 2024.
  • Flexibility: For businesses with changing profits, this plan is suitable as employers are not obligated to contribute annually.
  • Simple Administration: Minimal paperwork and no requirement for annual filings with the IRS except for regular tax filings.

Setting Up a SEP-IRA

  • Select a Financial Institution: virtual financial institution.
  • Execute a Written Agreement: Create a contractual arrangement and inform eligible employees.
  • Make Contributions: Based on business performance, contributions can be made by an established 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 dates and amounts. Additionally, ensure records are well-organized 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 low-cost as it's mainly funded by employees, and their contributions can be eligible for tax deduction.

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 ideal 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 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, 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 to employee contributions or make non-elective contributions, and ensure these are made timely.

Personal Defined Benefit Plan

This plan is specifically 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 maximum limit set each year. While this plan is highly customizable and allows for significant contributions, there may be beginning expenditures and annual fees 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 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 contribution requirements and how benefits are calculated.
  • Actuarial Calculations: Have an actuary calculate the necessary contributions to meet the promised benefits, ensuring compliance with 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: Ensure compliance by filing IRS Form 5500 annually to report on the plan’s status.
  • Permanence: A defined benefit plan should be maintained for at least 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: To reduce the employee’s taxable income, contributions are made before taxes. 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 $twenty-three thousand dollars, 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 urgent financial needs.

Setting Up a 401(k) Plan

  • Choose a Plan Provider: Pick a provider that offers various investment opportunities, administrative services, 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 protect them for employees.
  • 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 Individual 401(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 a range of investment options and minimal fees.
  • Create a Plan Document: Prepare the terms of your plan, including contribution limits, investment options, and loan provisions.
  • Open an Account: Open 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. 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 discretionary 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 adaptable option for businesses with changing 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 increase 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 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 pension scheme that invests mainly in the employer's stock. ESOPs provide employees with an ownership stake in the company, aligning their interests with the business's success, and potentially aiding in establishing the business's future leadership.

Benefits of an ESOP

  • Employee Ownership: ESOPs grant employees with an ownership stake in the company, which can enhance incentive and dedication.
  • Tax Benefits for the Company: Contributions to the ESOP are tax-deductible, and the company can also gain tax benefits related to the sale of stock to the ESOP.
  • Retirement Savings for Employees: Employees profit from the growth in the value of the company’s stock, offering 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 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: Prepare 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 perks they can expect.
  • Compliance and Reporting: File 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 take part 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 advantageous option for small businesses looking to save on expenses.
  • Administrative Efficiency: MEPs ease 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: Through an MEP, small businesses that might not have the resources to set up a retirement plan on their own can provide competitive retirement benefits, 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, 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 become part of 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: Inform the plan details to employees and facilitate their enrollment in the MEP.
  • Ongoing Administration: The MEP sponsor handles the majority of the administrative tasks, including compliance with IRS and Department of Labor requirements, submitting required documents, and managing plan assets.

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



Benefits of Setting Up a Small Business Retirement Plan in New Orleans, LA

The specific, financial-based benefits for your New Orleans, LA 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 also get tax breaks and can better attract and motivate employees. Companies and employees will both enjoy:


Employee Benefits

  • Better financial security in retirement
  • Tax deductions
  • Contributions can be easily made through payroll deductions
  • Contributions and investment gains are not taxed until distributed
  • Over the years small contributions grow into considerable savings
  • Ability to conduct a 401(k) rollover if they change employers

Business Benefits

  • Attract, recruit, and retain your best employees
  • Incentivize based on performance-based employer contributions
  • Deduct your taxable income from your taxable profits
  • Highly customized plans are available
  • Tax credits upon initial set-up

Do I Need a Financial Advisor in New Orleans, LA to Help With My Small Business Retirement Plan?

Opening small business retirement plans is complicated. While the federal government does not currently obligate any employer to offer retirement savings options to employees, certain states require employers with a certain number of employees to offer access to a retirement plan. New Orleans, LA retirement consultants that are experienced in helping business owners set up retirement plans are usually needed to not only make sure the plan is right for you, but that you follow frequently chancing tax and business laws.

As your New Orleans, LA 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 establishing your plan, including adopting a written plan, 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 staying compliant with applicable laws, managing the plan's assets, and distributing benefits
  • Help educate your employees on your plan, its benefits, and how it can serve as a important aspect of their ongoing financial journey

Correct Capital's New Orleans, LA financial planners are fiduciary advisors, meaning we are legally and ethically bound to do what's best for you and your employees. We work for you, and not our own firm. 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 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, 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 paperwork, compliance, and record-keeping tasks. Providers offer comprehensive administrative support, including payroll processing and fiduciary services.
  • Multiple Employer Plans (MEPs): Joining 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 raise 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.

Issue 4: Regulatory Compliance

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

Solution:

  • Professional Guidance: Hiring a financial advisor or consultant who specializes in retirement plans can help ensure compliance with ERISA, IRS, and Department of Labor regulations. Our team can assist with plan setup, annual filings, and ongoing management.
  • Use of Technology: Many retirement plan providers offer online platforms that help manage compliance by automating reporting, tracking contributions, and ensuring that all regulatory requirements are met.

Challenge 5: Flexibility and Adaptability

Business owners need plans that can change with changing business conditions.

Solution:

  • Flexible Plans: 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 assistance of dedicated New Orleans, LA financial advisors and retirement plan specialists, your business can overcome these challenges to create a small business retirement plan that works for both you and your employees.

Other services we offer in New Orleans, LA include:

Small Business Retirement Plans New Orleans, LA | Financial Advisors | Retirement Consultants Near New Orleans

Small Business Retirement Plans in New Orleans, LA | Correct Capital

Operating a small business involves a plethora of daily, monthly, and annual tasks to ensure things run smoothly — navigating the complexities of 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* 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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