Small Business Retirement Plans in Paterson, NJ

Small Business Retirement Plans in Paterson, NJ. Offering a retirement plan to your Paterson, NJ employees is a great way to retain talent, incentivize higher performance, and get those much-needed tax breaks. However, for most business owners, it can be difficult to know how to proceed once they decide to establish one. What benefits do different kinds of plans provide? What are the different laws that apply to different plans? What do I do when I want to change plans, or if I'm closing my business? Correct Capital's team of Paterson, 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 ins-and-outs of their individual plans and benefits. For anything from initial setup and employee guidance to fine-tuning an existing plan, call Correct Capital today at 314-930-401K or contact us online.

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

The federal government provides numerous investment options and retirement accounts for small business owners and their employees in anticipation of retirement. The most prevalent ones are:

SEP-IRA

This variant of individual retirement account is available to single-owner 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 from 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: This plan does not require employers to contribute annually, which is suitable for businesses with variable profits.
• 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: Choose an institution 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: Inform eligible employees by establishing a written agreement for the SEP IRA plan.
• Make Contributions: To make contributions, calculate a fixed percentage of each employee’s compensation. Alternatively, contribute based on a range of percentages determined by business performance.
• Maintain Records: Ensure you keep detailed 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 a maximum of 100 employees. Employees can make contributions to their own accounts through deductions from their salaries, and employers can also contribute. This plan is affordable as it's mainly funded by employees, and their contributions can be tax deductible.

Benefits of a SIMPLE IRA

• Ease of Setup and Administration: SIMPLE IRAs are straightforward to establish and maintain, with no need for yearly filings for employers. This makes them ideal 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 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 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 to employee contributions or make non-elective contributions, and ensure these are made in a timely manner.

Personal Defined Benefit Plan

This plan is solely for sole proprietor 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 an annual maximum limit. 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 $$275k 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 accounts.
• 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 plan document 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, per 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: Ensure compliance by filing IRS Form 5500 annually to report on the plan’s status.
• Permanence: A defined benefit plan should be maintained for a minimum of five years. Quickly terminated plans often serve as red flags and may attract regulatory scrutiny.

401(k) Plans

401(k)s are available to companies of any size, and are highly flexible. Employees may allocate their salary as contributions, and employers can make contributions every year. 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: To reduce the employee’s taxable income, contributions are made pre-tax. 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 $7,500 catch-up contribution for those aged 50 and older.
• Loan Options: Participants can often take loans against their 401(k) balance, providing flexibility in case of unexpected expenses.

Setting Up a 401(k) Plan

• Choose a Plan Provider: Select a provider that offers multiple investment opportunities, administrative support, and employee education.
• Create a Plan Document: Outline the terms of the plan, including eligibility, contributions, and vesting schedules.
• Set Up a Trust: Ensure plan assets are held in trust to protect them for employees.
• Develop a Recordkeeping System: Maintain precise 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)

Designed to offer the same benefits as a traditional 401(k), this plan is also known as a Solo 401(k). It is ideal 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 non-elective 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 benefit of individual 401(k)s is the ability 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. Seek out providers with multiple investment options and lower fees.
• Create a Plan Document: Draft 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 $two hundred fifty thousand dollars, you must file IRS Form 5500 annually. Maintain precise records of all contributions and transactions.

Profit Sharing Plans

A Profit Sharing Plan is a type of retirement plan where employers can make voluntary contributions to employee retirement accounts, determined by the company's profits. These plans are intended to share the company’s success with its employees and incentivize them to boost the company’s profitability.

Benefits of a Profit Sharing Plan

• Flexibility in Contributions: Employers can decide each year how much to contribute based on the company's profitability. This makes it an versatile option for businesses with variable 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 a quarter of an employee’s compensation or $66,000 for this year, making it a generous 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: 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 each 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 give employees a stake in the company, aligning their interests with the business's success, and potentially preparing the business's future generation of leadership.

Benefits of an ESOP

• Employee Ownership: ESOPs provide employees with an ownership stake in the company, which can heighten motivation and commitment.
• 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 benefit from the growth in the value of the company’s stock, granting potentially significant retirement savings.
• Succession Planning: ESOPs can be an effective strategy for business succession, permitting owners to sell their shares to high-performing employees, who can steadily take the lead as previous owners ease into retirement.

Setting Up an ESOP

• Feasibility Study: Perform a feasibility study to determine if an ESOP is a suitable option for your company.
• Hire ESOP Advisors: Consult financial, legal, and ESOP advisors to facilitate the setup process.
• Create a Plan Document: Prepare a plan document that defines the terms of the ESOP, including how shares will be apportioned and vested.
• Establish a Trust: Set up an ESOP trust to hold the company stock on behalf of employees.
• Communicate with Employees: Brief 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 join 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 pooling resources with other employers, businesses can lower administrative costs and fees associated with maintaining a retirement plan. This cost-sharing makes MEPs an favorable 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: Small companies lacking resources to provide a retirement plan on their own can deliver competitive retirement benefits through an MEP., which can help to attract and retain talented employees and create a competitive advantage in hiring they otherwise may not have had.
• 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 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 completing 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 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.

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

The specific, financial-based benefits for your Paterson, NJ 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 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. Below are some of the main benefits for both businesses and employees of setting up a small business retirement plan:

Why Should I Consult With a Financial Advisor in Paterson, NJ to Assist With My Small Business Retirement Plan?

Setting up small business retirement plans is complicated. While the federal government does not currently require any business to offer a retirement plan to employees, certain states require employers of a certain size to offer access to a retirement plan. Paterson, NJ retirement consultants that are experienced in helping business owners establish retirement plans are usually needed to not only make sure the plan is right for you, but that you abide by ever-changing tax and business laws.

As your Paterson, NJ retirement plan consultants for your small business, our team will:

• Help you decide 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 how specific of the plan apply to their retirement, 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 part of their continued financial success

Correct Capital's Paterson, NJ advisors hold ourselves to the fiduciary standard, meaning we are legally and ethically bound to do what's best for you and your employees. The only product we offer is trust. Request a consultation with a member of our advisor team today.

Common Challenges and Solutions in Small Business Retirement Plans

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Challenge 1: High Setup and Administrative Costs

Many small businesses are unwilling to set up retirement plans due to the expected high costs.

Solution:

• SIMPLE IRA and SEP IRA: These plans have decreased setup and administrative costs compared to traditional 401(k) plans.
• Tax Credits: The SECURE Act 2.0 offers tax credits for small businesses to offset the costs of setting up retirement plans. Businesses can receive a credit of up to $5,000 annually for three years to cover startup costs, plus an additional credit for automatic enrollment plans.

Challenge 2: Administrative Complexity

The challenges 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 payroll processing and fiduciary management.
• 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

Minimal employee engagement 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 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. 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 help of dedicated Paterson, 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 Paterson, NJ include:

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

Small Business Retirement Plans in Paterson, NJ | Correct Capital

Owning a small business comes with 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* throughout the country. To set up a retirement plan for your small business, or learn what other services we offer to business owners, speak to a financial advisor at Correct Capital today at 314-930-401K or contact us through our website.

*as of March 2024