Small Business Retirement Plans in Oxnard, CA. Setting up a retirement plan for you and your Oxnard, CA employees is a great way to retain talent, incentivize higher performance, and get those much-desired tax reductions. However, many business owners understandably have questions about small business retirement plans. What type of plan is best for your business? What federal regulations do I have to follow? What happens when I want to change plans, or if I'm retiring and my business will no longer be running? Correct Capital's team of Oxnard, CA financial planners is committed to helping business owners and their employees reap the benefits of their retirement plans and understanding the ins-and-outs of their individual plans and benefits. For anything from initial setup and employee guidance to fine-tuning an existing plan, speak to a financial advisor at 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 Oxnard, CA?
Various financial custodians provide numerous retirement plans and programs for small business owners and their employees in preparation for retirement. Among the most common are:
SEP-IRA
This form of individual retirement account is available to sole proprietor businesses, freelancers, and businesses with very few employees. It follows the similar rules as a traditional IRA, where the money put into the account grows tax-free. 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 tax-deductible.
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: This plan does not require employers to contribute annually, which is ideal for businesses with fluctuating profits.
- Simple Administration: With this plan, there is 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: Choose a company to hold SEP IRA assets, such as a bank, brokerage firm, or credit union. Alternatively, opt for an online financial institution.
- Execute a Written Agreement: Create a contractual arrangement and communicate with eligible employees.
- Make Contributions: To make contributions, calculate a predetermined percentage of each employee’s compensation or deposit funds based on a variable percentage.
- Maintain Records: Keep complete records of all contributions made to employee accounts, including time stamps and figures. 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 as many as 100 employees. Employees can fund their own accounts through deductions from their salaries, and employers can also make contributions. 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, 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 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 banking establishment, mutual 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 up to employee contributions or make non-elective contributions, and ensure these are made promptly.
Personal Defined Benefit Plan
This plan is specifically for sole proprietor 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 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 plan document 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: Managing the plan’s investments includes ensuring that required contributions are made annually. Annual actuarial reviews are necessary 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 five years. Quickly terminated plans often serve as signals and may attract regulatory scrutiny.
401(k) Plans
401(k)s are available to firms of any size, and are highly tailorable. 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:
- 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 before taxes, reducing the employee’s taxable income. Alternatively, contributions can be made post-tax (Roth). Investments grow tax-free until withdrawn.
- 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 financial emergencies.
Setting Up a 401(k) Plan
- Choose a Plan Provider: Pick a provider that offers multiple investment choices, administrative support, and staff training.
- Create a Plan Document: Prepare the terms of the plan, including eligibility, contributions, and vesting schedules.
- Set Up a Trust: Ensure plan assets are held in trust to preserve 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 modifications 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 nonelective 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: Choose a financial institution or brokerage that offers Individual 401(k) plans. Look for providers with various 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: Set up your Individual 401(k) account with the chosen provider. This typically involves submitting 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 $$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 determine each year how much to contribute based on the company's profitability. This makes it an flexible option for businesses with variable earnings.
- Tax Advantages: Contributions are tax-deductible for the business, reducing taxable income. Additionally, the funds grow tax-deferred, which can benefit employees' long-term savings.
- Employee Motivation and Retention: Linking contributions to company profits can 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 $sixty-six thousand dollars for this year, making it a beneficial option for employee benefits.
Setting Up a Profit Sharing Plan
- Choose a Plan Provider: Pick a financial institution 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 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 retirement plan that invests primarily in the employer's stock. ESOPs grant employees ownership interest in the company, aligning their goals with the business's success, and potentially establishing the business's future generation of leadership.
Benefits of an ESOP
- Employee Ownership: ESOPs grant employees with an equity share in the company, which can boost incentive and dedication.
- Tax Benefits for the Company: Contributions to the ESOP are deductible from taxes, and the company can also receive tax benefits pertaining to the sale of stock to the ESOP.
- Retirement Savings for Employees: Employees benefit from the growth in the value of the company’s stock, providing potentially substantial retirement savings.
- Succession Planning: ESOPs can be an effective strategy for business succession, permitting owners to sell their shares to their best 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: Consult financial, legal, and ESOP advisors to facilitate the setup process.
- Create a Plan Document: Draft a plan document that details the terms of the ESOP, including how shares will be distributed and vested.
- Establish a Trust: Initiate 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 advantages 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 affordable 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 cut 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 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: 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 can help to attract and retain talented employees and create 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, diminishing the liability and administrative burden on individual employers.
Setting Up an MEP
- Join an Existing MEP or Form a New One: Small businesses can either participate in an existing MEP or collaborate with other businesses to form a new one. This step involves selecting a MEP sponsor who will manage the plan.
- Select a Plan Provider: The MEP sponsor will work with 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 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 reputed 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 Oxnard, CA
The particular, financial-based benefits for your Oxnard, CA small business retirement plan is dependent upon which plan you choose. That said, a small business retirement plan, whichever one you choose, benefit employers and employees in the same way. 60% of employees say that a retirement plan is a "very important" factor in job satisfaction, 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
- Reduced taxable income
- Contributions are simple with payroll deductions
- They do not pay taxes on money they put in or how the money grew until they take them out
- Over the years small contributions grow into considerable sums of money
- Ability to conduct a 401(k) rollover if they change employers
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 Oxnard, CA to Help With My Small Business Retirement Plan?
Opening small business retirement plans is complicated. While the federal government does not currently obligate any business to offer a retirement plan to employees, some states require employers with a certain number of employees to have a retirement plan. Oxnard, CA retirement consultants that are experienced in helping business owners establish retirement plans are usually needed to not only ensure you and your employees get the most out of your plan, but that you abide by frequently chancing tax and business laws.
As your Oxnard, CA retirement plan consultants for your small business, our financial planners will:
- Help you decide the best plan for you, 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 how specific of the plan apply to their savings, and developing a record keeping system
- Help you operate your plan by keeping up-to-date 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 component to their continued financial journey
Correct Capital's Oxnard, CA advisors hold ourselves to the fiduciary standard, meaning we are legally and ethically bound to only work 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. Schedule 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 lower setup and administrative costs compared to traditional 401(k) plans.
- Tax Credits: The SECURE Act 2.0 offers tax credits for small businesses to offset the costs of setting up retirement plans. Businesses can receive a credit of up to $5,000 annually for three years to cover startup costs, with an additional credit for automatic enrollment plans.
Challenge 2: Administrative Complexity
The complexity of maintaining a retirement plan can be daunting for small business owners.
Solution:
- Outsource Administration: Many plan providers offer administrative services that can handle the majority of the administrative tasks, compliance, and record-keeping tasks. Providers offer comprehensive administrative support, including integration with payroll 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
Low employee participation 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.
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 adapt 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 help of dedicated Oxnard, 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 Oxnard, CA include:
- 401(k) Audit
- High-Net-Worth Wealth Management
- Retirement Planner
- Financial Planning
- Retirement Plan Consultants
- Fiduciary Financial Advisor
- Self-Employed Retirement Plans
Small Business Retirement Plans in Oxnard, CA | Correct Capital
Owning a small business involves countless 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 in both small and large companies, 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, call Correct Capital today at 314-930-401K or contact us through our website.
*as of March 2024