Small Business Retirement Plans in Peoria, AZ

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Small Business Retirement Plans in Peoria, AZ. Offering a retirement plan to your Peoria, AZ employees offers a variety of benefits, including tax reductions and a great way to attract and retain your highest-performing workers. However, many business owners understandably have questions about small business retirement plans. What benefits do different kinds of plans provide? What federal regulations do I have to follow? What happens when a new plan seems like a better option, or if I'm closing my business? Correct Capital's team of Peoria, AZ financial planners has over 70 years of combined experience helping business owners and their employees reap the rewards of their retirement plans and navigate the complexity 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.



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What Types of Retirement Plans Are Available to Small Businesses in Peoria, AZ?

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


SEP-IRA

This variant of individual retirement account is available to owner-only businesses, freelancers, and businesses with very few employees. It follows the similar rules as a traditional IRA, where the money put into the account grows tax-deferred. Employers can deduct contributions they make on behalf of their employees. Only employers make deposits, which are adjustable 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 suitable as employers are not obligated to contribute every year.
  • Simple Administration: The plan requires minimal paperwork and has no need for yearly filings with the IRS beyond regular tax filings.

Setting Up a SEP-IRA

  • Select a Financial Institution: To hold SEP IRA assets, select a provider such as a bank, brokerage firm, or credit union. Alternatively, an online financial institution.
  • Execute a Written Agreement: Communicate with eligible employees by establishing a contractual arrangement for the SEP IRA plan.
  • Make Contributions: To make contributions, calculate an established percentage of each employee’s compensation. Alternatively, deposit funds based on a variable percentage determined by business earnings.
  • Maintain Records: Keep detailed records of all contributions made to employee accounts, including dates of contribution 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 a maximum of 100 employees. Employees can make contributions to their own accounts through salary deferrals, and employers can also contribute. This plan is low-cost as it's mainly funded by employees, and their contributions can be tax deductible.

Benefits of a SIMPLE IRA

  • Ease of Setup and Administration: SIMPLE IRAs are simple to establish and maintain, with no annual filing requirements for employers. This makes them ideal for small businesses with limited 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 immediately 100% vested, meaning employees have full ownership of all funds in their accounts as soon as contributions are made.

Setting Up a SIMPLE IRA

  • Select a Financial Institution: Choose a financial institution, 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 promptly.

Personal Defined Benefit Plan

This plan is exclusively for owner-only businesses, or those with up to 5 employees. With this plan, you target a desired level of retirement income, and contribution limits are adjusted each year based on that, with a maximum limit set each year. While this plan is highly customizable and allows for significant contributions, there may be startup costs and annual fees associated with it.

Benefits of a Personal Defined Benefit Plan

  • High Contribution Limits: Allows for significantly higher contributions compared to other retirement plans, potentially reaching $$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 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 a financial institution or retirement plan provider that has experience with defined benefit plans to establish the plan.
  • Create a Plan Document: Draft a scheme document that details the terms of the plan, including benefit formulas and contribution requirements.
  • Actuarial Calculations: Have a financial analyst calculate the necessary contributions to meet the promised benefits, ensuring compliance with IRS requirements.
  • Annual Administration: To manage the plan’s investments, ensure that required contributions are made annually and conduct annual actuarial reviews to adjust for any changes in funding requirements.
  • Compliance and Reporting: Ensure compliance by filing IRS Form 5500 annually to report on the plan’s status.
  • Permanence: A defined benefit plan should be maintained for five years. Quickly terminated plans often serve as signals and may attract regulatory scrutiny.

401(k) Plans

401(k)s are available to businesses of any size, and are highly adaptable. Employees may postpone 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:

Benefits of a 401(k) Plan

  • Tax Advantages: Contributions are made pre-tax, reducing the employee’s taxable income. Alternatively, contributions can be made post-tax (Roth). Investments grow without immediate tax.
  • Employer Matching: Many employers offer match programs, which can significantly boost an employee's retirement savings.
  • Higher Contribution Limits: For this year, employees can contribute up to $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: Pick a provider that offers various investment options, administrative services, and staff training.
  • Create a Plan Document: Detail the terms of the plan, including eligibility, contributions, and vesting schedules.
  • Set Up a Trust: Ensure plan assets are held in trust to secure them for participants.
  • 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 modifications 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 company 401(k), but 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 25% of compensation or, if self-employed, an amount considering your earned income and deducting half of self-employment tax paid and contributions made by you during the year. Another advantage of individual 401(k)s is that you can opt to open a Roth 401(k) account, or roll over pre-tax assets.

Setting Up an Individual 401(k)

  • Choose a Plan Provider: Pick a financial institution or brokerage that offers Individual 401(k) plans. Look for providers with a range of 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 completing 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. 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 incentivize them to boost the company’s profitability.

Benefits of a Profit Sharing Plan

  • Flexibility in Contributions: Employers can choose each year how much to contribute based on the company's profitability. This makes it an adaptable option for businesses with changing earnings.
  • Tax Advantages: Contributions are tax-deductible for the business, reducing taxable income. Additionally, the funds grow tax-free until withdrawal, which can benefit employees' long-term savings.
  • Employee Motivation and Retention: Linking contributions to company profits can boost employee morale and loyalty, as employees directly benefit from the company’s success.
  • High Contribution Limits: Employers can contribute up to the lesser of a quarter of an employee’s compensation or $$66k for the current 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: Prepare a plan document outlining the profit-sharing formula, eligibility requirements, and vesting schedule.
  • Communicate with Employees: Educate employees about the plan, how it works, and the benefits they can expect.
  • Determine Contributions: Annually decide the amount to contribute based on company profits and the predetermined formula.
  • File Necessary Forms: File IRS Form 5500 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 pension scheme that primarily invests in the employer's stock. ESOPs provide 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 offer employees with an ownership stake in the company, which can increase drive and loyalty.
  • Tax Benefits for the Company: Contributions to the ESOP are tax-deductible, and the company can also gain tax benefits associated with 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 significant retirement savings.
  • Succession Planning: ESOPs can be an effective method for business succession, enabling 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: Execute a feasibility study to determine if an ESOP is a appropriate option for your company.
  • Hire ESOP Advisors: Hire financial, legal, and ESOP advisors to aid in the setup process.
  • Create a Plan Document: Compose a plan document that outlines 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: 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 participate 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 reduce 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 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, helping to attract and retain talented employees and offer 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, reducing the liability and administrative burden on individual employers.

Setting Up an MEP

  • Join an Existing MEP or Form a New One: Small businesses can either 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 a bank 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, 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 Peoria, AZ

The particular, financial-based advantages to your Peoria, AZ 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. 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 also get tax breaks and can better attract and motivate employees. Below are some of the main benefits for both businesses and employees of establishing a small business retirement plan:


Employee Benefits

  • Better confidence in their retirement planning
  • Reduced taxable income
  • Contributions can be easily made through salary deferral
  • Contributions and investment gains are not taxed until they withdraw them
  • Over the years small savings grow into significant savings
  • Ability to conduct a 401(k) rollover if it's beneficial down the road

Business Benefits

  • Attract, recruit, and retain high performers
  • Promote great work ethic
  • Employer contributions are tax-deductible
  • Highly customized plans are available
  • Tax credits that can help reduce startup costs

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

Opening small business retirement plans is not the same thing as setting up a personal savings plan at your local Peoria, AZ bank. While the federal government does not currently require any business to offer a retirement plan to workers, certain states require employers of a certain size to have a retirement plan. Peoria, AZ 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 ever-changing tax and business laws.

As your Peoria, AZ 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 establishing 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 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 they can use it as a part of their continued financial journey

Correct Capital's Peoria, AZ financial planners are fiduciary advisors, meaning we are obligated, by law and by regulatory oversight to only work 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 reluctant 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, with an additional credit for automatic enrollment plans.

Challenge 2: Administrative Complexity

The administrative burden 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 services.
  • 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

Minimal employee engagement 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.

Problem 4: Adhering to Regulations

Managing 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: Choose 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 assistance of dedicated Peoria, AZ financial advisors and retirement plan specialists, your business can overcome these challenges to create a small business retirement plan that works for both you and your employees.

Other services we offer in Peoria, AZ include:

Small Business Retirement Plans Peoria, AZ | Financial Advisors | Retirement Consultants Near Peoria

Small Business Retirement Plans in Peoria, AZ | Correct Capital

Owning a small business comes with a plethora of daily, monthly, and annual tasks to ensure things run smoothly — setting up and maintaining a small business retirement plan doesn't have to 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* across the United States. 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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