Small Business Retirement Plans in Newark, NJ

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Small Business Retirement Plans in Newark, NJ. Starting up a retirement plan for you and your Newark, NJ employees is a great way to retain talent, incentivize higher performance, and get those much-needed tax breaks. While the benefits may be clear, the difficulties of establishing and maintaining small business retirement plans are not. What type of plan is best for your business? What are the different laws that apply to different plans? 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 Newark, NJ 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 federal regulations. Whether you already have a plan and want insight as to how it's performing or need to set up a plan, call Correct Capital today at 314-930-401K or contact us through our website.



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What Types of Retirement Plans Are Available to Small Businesses in Newark, NJ?

Retirement plans and accounts are offered to small business owners and their employees by the federal government and various financial custodians in preparation for retirement. Among the most common are:


SEP-IRA

This kind 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 tax-deferred. Employers can deduct contributions they make on behalf of their employees. Only employers make deposits, which are modifiable 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: The plan does not require employers to contribute each year, which is perfect for businesses with changing profits.
  • Simple Administration: 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: Selecting a financial institution involves choosing a company such as a bank, brokerage firm, or credit union. Another option is a virtual financial institution.
  • Execute a Written Agreement: Notify eligible employees by establishing a written agreement for the SEP IRA plan.
  • Make Contributions: Calculate and make contributions based on a fixed percentage of each employee’s compensation. Alternatively, make payments based on a percentage range determined by business profits.
  • Maintain Records: Keep complete records of all contributions made to employee accounts, including dates of contribution and sums. Additionally, ensure records are well-organized and easily accessible for inspection 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 fund their own accounts through deductions from their salaries, and employers can also contribute. This plan is inexpensive 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 easy to establish and maintain, with no need for yearly filings for employers. This makes them suitable for small businesses with restricted administrative resources.
  • Employer Contributions: Employers are required to make contributions, by either matching employee contributions up to 3% of their salary or making a non-elective contribution of 2% of each eligible employee’s salary.
  • Employee Contributions: Employees can contribute up to $16,000 in 2024, with an additional catch-up contribution of $3,500 for those aged 50 and older.
  • Immediate Vesting: All contributions to the SIMPLE IRA are promptly 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 details 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 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 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 initial expenses and recurring costs associated with it.

Benefits of a Personal Defined Benefit Plan

  • High Contribution Limits: Allows for significantly higher contributions compared to other retirement plans, potentially reaching $$275k annually (in 2024) depending on age, income, and the desired retirement benefit.
  • Predictable Retirement Benefits: The plan promises a specific benefit at retirement, providing more predictability for retirement planning compared to defined contribution plans like 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 plan 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: 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 needs to be in place for at least five years. Plans established that are quickly terminated are often signals and open to regulatory scrutiny.

401(k) Plans

401(k)s are available to corporations of any size, and are highly tailorable. 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 are made before taxes, reducing the employee’s taxable income. Alternatively, contributions can be made post-tax (Roth). Investments grow tax-deferred.
  • Employer Matching: Many employers offer matching contributions, 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 $$7.5k catch-up contribution for those aged 50 and older.
  • Loan Options: Participants can often take loans against their 401(k) balance, providing flexibility in case of unexpected expenses.

Setting Up a 401(k) Plan

  • Choose a Plan Provider: Select a provider that offers various investment options, administrative support, and employee learning resources.
  • 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 preserve 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 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 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 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: Select a financial institution or brokerage that offers Individual 401(k) plans. Look for providers with a range of investment options and minimal 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: 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 $two hundred fifty thousand dollars, you must file IRS Form 5500 annually. Keep accurate records of all contributions and transactions.

Profit Sharing Plans

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

Benefits of a Profit Sharing Plan

  • Flexibility in Contributions: Employers can determine each year how much to contribute based on the company's profitability. This makes it an versatile option for businesses with changing earnings.
  • Tax Advantages: Contributions are tax-deductible for the business, reducing taxable income. Additionally, the funds grow tax-free until withdrawal, 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 one-fourth of an employee’s compensation or $$66k for this year, making it a generous 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: 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: Each year 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 grant 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 equity share in the company, which can boost drive and loyalty.
  • 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, offering potentially substantial retirement savings.
  • Succession Planning: ESOPs can be an effective tool for business succession, permitting 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: Execute a feasibility study to determine if an ESOP is a feasible option for your company.
  • Hire ESOP Advisors: Retain financial, legal, and ESOP advisors to facilitate 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: Create an ESOP trust to hold the company stock on behalf of employees.
  • Communicate with Employees: Educate employees about the ESOP, how it works, and the benefits they can expect.
  • Compliance and Reporting: Send in 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 sharing resources with other employers, businesses can cut administrative costs and fees associated with maintaining a retirement plan. This cost-sharing makes MEPs an attractive option for small businesses looking to save on expenses.
  • Administrative Efficiency: MEPs facilitate 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 businesses that might not have the resources to offer a retirement plan on their own can provide competitive retirement benefits through an MEP, which helps to attract and retain talented employees and give the business access to a competitive advantage they wouldn't be able to have on their own.
  • 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 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 a bank 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, filing necessary forms, and managing plan assets.

There are benefits and drawbacks to each plan, and which may be "best" for you will depend on your business and your and your employees' needs. Different plans and accounts have different tax advantages, fees, required minimum distributions, contribution limits, and more. A renowned financial advisor like those at Correct Capital will be able to help you determine which plan works best for you and your team.



Why You Should Set Up a Small Business Retirement Plan in Newark, NJ

The particular, financial-based benefits for your Newark, NJ small business retirement plan will largely be based on the specific plan you set up. That said, a small business retirement plan, whichever one you choose, benefit employers and employees in the same way. Over half of workers responded to a survey stating it is a "very important" factor in how good they feel at their present employment, while employers reap the benefits both during tax season and in office productivity. Companies and employees will both enjoy:


Employee Benefits

  • More confidence in their retirement planning
  • Tax deductions
  • Contributions are simple with payroll deductions
  • They do not pay taxes on contributions or how the money grew until distributed
  • Over the years small savings grow into considerable sums of money
  • Ability to conduct a 401(k) rollover if they change employers

Business Benefits

  • Attract, recruit, and retain high performers
  • Incentivize based on performance-based employer contributions
  • Deduct your taxable income from your taxable profits
  • 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 Newark, NJ to Assist With My Small Business Retirement Plan?

Opening small business retirement plans is not the same thing as setting up a personal account at your local Newark, NJ bank. While the federal government does not currently require any business to offer retirement savings options to employees, certain states require businesses of a certain size to offer access to a retirement plan. Newark, NJ 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 Newark, NJ 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 setting up 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 it can serve as a component to their ongoing financial success

Correct Capital's Newark, NJ financial planners are fiduciary advisors, meaning we are legally and ethically bound to only offer advice based on what we believe is in your best interest. As an independent firm, we have the freedom and flexibility to tailor our offerings to best suit the goals of our clients. 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 are reluctant to set up retirement plans due to the perceived 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 documentation, compliance, and record-keeping tasks. Providers offer comprehensive administrative support, including payroll integration and fiduciary services.
  • 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

Minimal employee engagement can limit the effectiveness of a retirement plan.

Solution:

  • Automatic Enrollment: Introducing 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.

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: Select retirement plans that offer flexibility in contributions. SEP IRAs, for example, allow employers to decide each year how much to contribute based on the company’s profitability, making it a suitable option for businesses with variable income.
  • Regular Plan Reviews: Conduct regular reviews of your retirement plan to ensure it continues to meet the needs of your business and employees. Adjust the plan as necessary to align with changes in your business environment and workforce demographics.

With the support of dedicated Newark, NJ 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 Newark, NJ include:

Small Business Retirement Plans Newark, NJ | Financial Advisors | Retirement Consultants Near Newark

Small Business Retirement Plans in Newark, NJ | Correct Capital

Owning a small business involves a mountain 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 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 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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