Small Business Retirement Plans in Phoenix, AZ. Establishing a retirement plan for you and your Phoenix, AZ employees offers a variety of benefits, including tax reductions and a great way to attract and retain your highest-performing workers. However, for most business owners, it can be difficult to know how to proceed once they decide to establish one. 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 retiring and my business will no longer be running? Correct Capital's team of Phoenix, AZ financial planners is dedicated to helping business owners and their employees get the most out of their retirement plans and navigate the complexity of federal regulations. 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 through our website.
Schedule a Meeting With an Advisor Today
Correct Capital Wealth Management's office is physically located in St. Louis, MO, but we serve clients throughout the United States in both personal financial planning and corporate retirement plans.
Schedule a 15-Minute Introductory Call
What Types of Retirement Plans Are Available to Small Businesses in Phoenix, AZ?
Retirement plans and accounts are offered to small business owners and their employees by the federal government and various financial custodians to better prepare for retirement. Among the most common are:
SEP-IRA
This type of individual retirement account is available to self-employed 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 payments, 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: The plan does not require employers to contribute annually, which is suitable for businesses with variable profits.
- Simple Administration: With this plan, there is minimal paperwork and no requirement for annual filings with the IRS beyond regular tax filings.
Setting Up a SEP-IRA
- Select a Financial Institution: To hold SEP IRA assets, select an institution like a bank, brokerage firm, or credit union. Another option is a virtual financial institution.
- Execute a Written Agreement: Create a contractual arrangement and notify eligible employees.
- Make Contributions: Contributions can be made by calculating an established percentage of each employee’s compensation. Alternatively, contribute based on a percentage range determined by business performance.
- Maintain Records: Ensure you keep thorough 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 a maximum of 100 employees. Employees can fund their own accounts through deductions from their salaries, and employers can also contribute. This plan is inexpensive as it's mainly funded by employees, and their contributions can be eligible for tax deduction.
Benefits of a SIMPLE IRA
- Ease of Setup and Administration: SIMPLE IRAs are easy to establish and maintain, with no annual filing requirements 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 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 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 establishing their accounts and making their contributions.
- Employer Contributions: Decide whether to match up employee contributions or make non-elective contributions, and ensure these are made promptly.
Personal Defined Benefit Plan
This plan is specifically 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 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 401(k)s.
- Tax Advantages: Contributions are tax-deductible, reducing current taxable income. The investments grow tax-deferred until distribution.
Setting Up a Personal Defined Benefit Plan
- Consult with a Plan Provider: Work with a financial institution or retirement plan provider that specializes in defined benefit plans to establish the plan.
- Create a Plan Document: Draft a 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, 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 five years. Quickly terminated plans often serve as signals and may attract regulatory scrutiny.
401(k) Plans
401(k)s are available to companies of any size, and are highly flexible. 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 can be made tax-free initially, which reduces the employee’s taxable income. Alternatively, post-tax (Roth) contributions can be made. Investments grow without immediate tax.
- Employer Matching: Many employers offer matching contributions, which can significantly boost an employee's retirement savings.
- Higher Contribution Limits: For this year, employees can contribute up to $$23k, with an additional $$7.5k catch-up contribution for those aged 50 and older.
- Loan Options: Participants can often take loans against their 401(k) balance, providing flexibility in case of unexpected expenses.
Setting Up a 401(k) Plan
- Choose a Plan Provider: Select a provider that offers various investment choices, administrative services, and employee education.
- Create a Plan Document: Draft 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: Maintain precise records of contributions, earnings, and distributions.
- Distribute Plan Information: Employers sponsoring a 401(k) must distribute plan information and changes in a timely manner.
Individual 401(k)
Designed to offer the same benefits as a company 401(k), this plan is also known as a Solo 401(k). It is ideal 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 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: Pick a financial institution or brokerage that offers Individual 401(k) plans. Search for providers with various 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: Open your Individual 401(k) account with the chosen provider. This typically involves completing an application and providing necessary documentation.
- Make Contributions: Determine 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 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 decide each year how much to contribute based on the company's profitability. This makes it an adaptable option for businesses with fluctuating 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 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 a quarter of an employee’s compensation or $66,000 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: Draft 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 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 provide employees a stake 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 provide employees with an partial ownership in the company, which can increase motivation and commitment.
- Tax Benefits for the Company: Contributions to the ESOP are eligible for tax deduction, and the company can also receive tax benefits related to the sale of stock to the ESOP.
- Retirement Savings for Employees: Employees profit 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, allowing owners to sell their shares to high-performing employees, who can slowly take the lead as previous owners transition into retirement.
Setting Up an ESOP
- Feasibility Study: Carry out a feasibility study to determine if an ESOP is a suitable option for your company.
- Hire ESOP Advisors: Hire financial, legal, and ESOP advisors to aid in the setup process.
- Create a Plan Document: Write a plan document that details the terms of the ESOP, including how shares will be allocated and vested.
- Establish a Trust: Establish an ESOP trust to hold the company stock on behalf of employees.
- Communicate with Employees: Advise employees about the ESOP, how it works, and the benefits they can expect.
- Compliance and Reporting: Send in necessary documents with the IRS and the Department of Labor, including Form 5500, to ensure compliance.
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 economical 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 advantageous option for small businesses looking to save on expenses.
- Administrative Efficiency: MEPs simplify 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: Businesses with limited resources to provide a retirement plan on their own can deliver competitive retirement benefits through an MEP., helping to attract and retain talented employees and offer 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 a financial institution 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: Communicate 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 benefits, fees, required minimum distributions, contribution limits, and more. A trusted 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 Phoenix, AZ
The specific, financial-based advantages to your Phoenix, AZ small business retirement plan will largely be based on the specific plan you choose. However, there are many general benefits of setting up a small business retirement plan for both businesses and workers. Three out of five workers say that a retirement plan is a "very important" factor in job satisfaction, 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 having a small business retirement plan:
Employee Benefits
- More confidence in their retirement planning
- Reduced taxable income
- Contributions are simple with salary deferral
- Contributions and investment gains are not taxed until they withdraw them
- Over the years small savings grow into considerable sums of money
- Ability to conduct a 401(k) rollover if they change employers
Business Benefits
- Attract, recruit, and retain talent
- Incentivize based on performance-based employer contributions
- Deduct your taxable income from your taxable profits
- Highly customized plans are available
- Tax credits that can help reduce startup costs
Why Should I Consult With a Financial Advisor in Phoenix, AZ to Assist With My Small Business Retirement Plan?
Setting up small business retirement plans is complicated. While the federal government does not currently obligate any company to offer a retirement plan to employees, certain states require employers of a certain size to offer access to a retirement plan. Phoenix, AZ retirement consultants that have spent years helping business owners establish 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 Phoenix, AZ retirement plan consultants for your small business, our financial planners will:
- Help you decide which plan works best for you and your employees, and the right custodian to hold plan assets
- Assist you in establishing your plan, including adopting a written plan, arranging a trust for plan assets, helping employees understand the plan's terms, and creating a record keeping system
- Help you operate your plan by staying compliant with relevant 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 important aspect of their continued financial journey
Correct Capital's Phoenix, AZ financial planners are fiduciary advisors, meaning we are obligated, by law and by regulatory oversight to do what's best for you and your employees. We work for you, and not our own firm. Request a consultation with a member of our advisor team today.
Common Challenges and Solutions in Small Business Retirement Plans
Challenge 1: High Setup and Administrative Costs
Many small businesses hesitate 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 administrative tasks, compliance, and record-keeping tasks. Providers offer comprehensive administrative support, including payroll integration and fiduciary responsibilities.
- Multiple Employer Plans (MEPs): Participating in an MEP can significantly reduce the administrative burden as the MEP sponsor handles most of the administrative duties, including compliance and reporting.
Challenge 3: Employee Participation and Engagement
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 boost 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.
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. Correct Capital 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 Phoenix, AZ 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 Phoenix, AZ include:
- 401(k) Audit
- High-Net-Worth Wealth Management
- Retirement Planner
- Financial Planning
- Retirement Plan Consultants
- Fiduciary Financial Advisor
Small Business Retirement Plans in Phoenix, AZ | Correct Capital
Operating a small business involves a mountain of moving parts and tasks to ensure things run smoothly — setting up and maintaining a small business retirement plan doesn't have to be one of them. Correct Capital currently manages over 37 plans for a variety of types of businesses, and represents over $212 million in total plan assets* nationwide. To set up a retirement plan for your small business, or learn what we can do for business owners, call Correct Capital today at 314-930-401K or contact us online.
*as of March 2024