Small Business Retirement Plans in Oakland, CA

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Small Business Retirement Plans in Oakland, CA. Offering a retirement plan to your Oakland, CA employees offers a variety of benefits, including tax reductions and a great way to attract and retain talent. While the benefits may be clear, the difficulties of setting up and maintaining small business retirement plans are not. What type of plan is best for your business? 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 Oakland, CA financial planners is dedicated to helping business owners and their employees reap the rewards of having a sound retirement plans and understanding the specifics 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 online.



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What Types of Retirement Plans Are Available to Small Businesses in Oakland, CA?

Various financial custodians provide a variety of savings plans and savings vehicles for small business owners and their employees in anticipation of retirement. Among the most common are:


SEP-IRA

This type of individual retirement account is available to owner-only businesses, freelancers, and businesses with very few employees. It follows the same 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 flexible and can vary annually. Additionally, the contributions are eligible for tax deduction.

Benefits of a SEP-IRA

  • High Contribution Limits: For 2024, employers are allowed to contribute up to 25% of each employee’s compensation, with a cap of $69,000.
  • Flexibility: For businesses with changing profits, this plan is perfect as employers are not obligated to contribute each year.
  • Simple Administration: The plan requires minimal paperwork and does not require annual filings with the IRS except for regular tax filings.

Setting Up a SEP-IRA

  • Select a Financial Institution: Choose an institution to hold SEP IRA assets, like a bank, brokerage firm, or credit union. Alternatively, opt for a virtual financial institution.
  • Execute a Written Agreement: Establish a written agreement and communicate with eligible employees of the SEP IRA plan.
  • Make Contributions: Based on business performance, contributions can be made by a set percentage of each employee’s compensation or deposit funds based on a range of percentages.
  • Maintain Records: To maintain records, keep complete records of all contributions made to employee accounts, including dates and sums. Additionally, ensure records are 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 payroll deductions, 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 perfect for small businesses with restricted 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 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 bank, mutual 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 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 in a timely manner.

Personal Defined Benefit Plan

This plan is exclusively for single-owner businesses, or those with as many as 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 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 $275,000 annually (in 2024) depending on age, income, and the desired retirement benefit.
  • Predictable Retirement Benefits: The plan promises a specific benefit at retirement, providing more predictability for retirement planning compared to defined contribution plans like 401k plans.
  • Tax Advantages: Contributions are tax-deductible, reducing current taxable income. The investments grow tax-deferred until distribution.

Setting Up a Personal Defined Benefit Plan

  • Consult with a Plan Provider: Work with an investment firm 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 benefit formulas and contribution requirements.
  • 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: 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 at least five years. Plans that are quickly terminated can be indicators and subject to regulatory scrutiny.

401(k) Plans

401(k)s are available to businesses of any size, and are highly customizable. Employees may postpone their salary as contributions, and employers can make annual contributions. Most 401(k) plans come with significant tax planning advantages for both businesses and employees. They can include:

Benefits of a 401(k) Plan

  • Tax Advantages: Contributions can be made pre-tax, which reduces the employee’s taxable income. Alternatively, post-tax (Roth) contributions can be made. 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 $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 financial emergencies.

Setting Up a 401(k) Plan

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

Individual 401(k)

This plan, also known as a Individual 401(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. Look for providers with multiple investment options and lower fees.
  • Create a Plan Document: Establish 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 filling out 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. 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 optional 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 determine 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 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 $66,000 for 2024, making it a beneficial option for employee benefits.

Setting Up a Profit Sharing Plan

  • Choose a Plan Provider: Choose a investment firm or retirement plan provider to administer the plan.
  • Create a Plan Document: Write a plan document outlining the profit-sharing formula, eligibility requirements, and vesting schedule.
  • Communicate with Employees: Advise 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 every year to report the plan’s status and compliance.

Employee Stock Ownership Plan (ESOPs)

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

An Employee Stock Ownership Plan (ESOP) is a employee benefit plan 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 offer employees with an ownership stake in the company, which can enhance drive and dedication.
  • Tax Benefits for the Company: Contributions to the ESOP are eligible for tax deduction, and the company can also obtain tax benefits pertaining to the sale of stock to the ESOP.
  • Retirement Savings for Employees: Employees gain from the growth in the value of the company’s stock, offering potentially considerable 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 move into retirement.

Setting Up an ESOP

  • Feasibility Study: Perform a feasibility study to determine if an ESOP is a viable option for your company.
  • Hire ESOP Advisors: Retain financial, legal, and ESOP advisors to facilitate the setup process.
  • Create a Plan Document: Write a plan document that specifies the terms of the ESOP, including how shares will be assigned and vested.
  • Establish a Trust: Create an ESOP trust to hold the company stock on behalf of employees.
  • Communicate with Employees: Update employees about the ESOP, how it works, and the perks they can expect.
  • Compliance and Reporting: 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 take part in a single retirement plan and achieve economies of scale. MEPs are designed to provide small businesses with a affordable 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 appealing option for small businesses looking to save on expenses.
  • Administrative Efficiency: MEPs facilitate the management of retirement plans by combining administrative tasks. This includes plan setup, compliance, reporting, and participant communication, which are handled by the MEP sponsor or administrator.
  • Improved Access to Benefits: An MEP allows small businesses that might not have the resources to offer a retirement plan on their own can offer competitive retirement benefits, which can help 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, 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 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 an investment firm or retirement plan provider to administer the plan.
  • Adopt the Plan: Each participating employer must formally adopt the MEP by executing 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 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 advantages, 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.



Why You Should Set Up a Small Business Retirement Plan in Oakland, CA

The specific, financial-based benefits for your Oakland, CA small business retirement plan is dependent upon which plan you set up. That said, there are many general benefits of setting up a small business retirement plan for both businesses and workers. 60% of employees say that a retirement plan is a "very important" factor in how good they feel at their present employment, while employers also get tax breaks and can better attract and motivate employees. Below are some of the main benefits for both businesses and employees of having a small business retirement plan:


Employee Benefits

  • Improved confidence in their retirement planning
  • Tax deductions
  • Contributions are simple with salary deferral
  • They do not pay taxes on contributions or investments gains until distributed
  • Over the years small savings grow into significant sums of money
  • Ability to conduct a 401(k) rollover if it's beneficial down the road

Business Benefits

  • Attract, recruit, and retain your best employees
  • Promote great work ethic
  • Employer contributions are tax-deductible
  • Highly customized plans are available
  • Tax credits upon initial set-up

Why Should I Consult With a Financial Advisor in Oakland, CA to Help With My Small Business Retirement Plan?

Creating small business retirement plans is complicated. While the federal government does not currently obligate any employer to offer retirement savings options to employees, some states require businesses of a certain size to have a retirement plan. Oakland, CA retirement consultants that have spent years helping business owners create retirement plans are usually needed to not only ensure you get the benefits you're looking for, but that you abide by evolving tax and business laws.

As your Oakland, CA retirement plan consultants for your small business, our advisers will:

  • Help you choose which plan works best for you and your employees, and which financial institution should house the assets
  • Assist you in setting up your plan, including creating a document that complies with IRS code, arranging a trust for plan assets, helping employees understand how specific of the plan apply to their retirement, and implementing 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 part of their ongoing financial journey

Correct Capital's Oakland, CA advisors hold ourselves to the fiduciary standard, meaning we are legally and ethically obligated to only offer advice based on what we believe is in your best interest. The only thing we sell is trust. Request 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 reduced setup and administrative costs compared to traditional 401(k) plans.
  • Tax Credits: The SECURE Act 2.0 offers tax credits for small businesses to offset the costs of setting up retirement plans. Businesses can receive a credit of up to $5,000 annually for three years to cover startup costs, and 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): Enrolling 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: 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 increase participation and savings rates.
  • Employee Education: Providing regular education and communication about the benefits of the retirement plan can help increase employee engagement. Provide 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

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: Opt for 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 support of dedicated Oakland, CA 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 Oakland, CA include:

Small Business Retirement Plans Oakland, CA | Financial Advisors | Retirement Consultants Near Oakland

Small Business Retirement Plans in Oakland, CA | Correct Capital

Owning a small business comes with 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* throughout the country. To set up a retirement plan for your small business, or learn what we can do for business owners, call Correct Capital today at 314-930-401K or contact us through our website.

*as of March 2024

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