Small Business Retirement Plans in Providence, RI

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Small Business Retirement Plans in Providence, RI. Offering a retirement plan to your Providence, RI employees offers a variety of benefits, including tax reductions and a great way to attract and retain your highest-performing workers. While the benefits may be clear, the difficulties of setting up and maintaining small business retirement plans are not. 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 retiring and my business will no longer be running? Correct Capital's team of Providence, RI financial planners is dedicated to helping business owners and their employees get the most out of their retirement plans and understanding the specifics of their individual plans and benefits. For anything from initial setup and employee education to making annual adjustments, 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 Providence, RI?

The federal government provides numerous savings plans and retirement accounts for small business owners and their employees in anticipation of retirement. These include:


SEP-IRA

This kind 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 contributions, 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 perfect as employers are not obligated to contribute each year.
  • Simple Administration: Minimal paperwork and no need for yearly filings with the IRS beyond regular tax filings.

Setting Up a SEP-IRA

  • Select a Financial Institution: Choose a provider to hold SEP IRA assets, like a bank, brokerage firm, or credit union. Alternatively, opt for a digital financial institution.
  • Execute a Written Agreement: Establish a written agreement and notify eligible employees of the SEP IRA plan.
  • Make Contributions: Based on business performance, contributions can be made by a set percentage of each employee’s compensation or deposit funds based on a variable percentage.
  • Maintain Records: Ensure you keep comprehensive records of all contributions made to employee accounts, including dates of contribution and amounts. Additionally, ensure records are well-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 salary deferrals, and employers can also contribute. This plan is inexpensive as it's mainly funded by employees, and their contributions can be deductible from taxes.

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 constrained 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 an additional 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 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 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 in a timely manner.

Personal Defined Benefit Plan

This plan is exclusively for single-owner 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 maximum limit set each year. While this plan is highly customizable and allows for significant contributions, there may be initial expenses and yearly charges associated with it.

Benefits of a Personal Defined Benefit Plan

  • High Contribution Limits: Allows for significantly higher contributions compared to other retirement plans, potentially reaching $275,000 annually (in 2024) depending on age, income, and the desired retirement benefit.
  • Predictable Retirement Benefits: The plan promises a specific benefit at retirement, providing more predictability for retirement planning compared to defined contribution plans like 401k plans.
  • Tax Advantages: Contributions are tax-deductible, reducing current taxable income. The investments grow tax-deferred until distribution.

Setting Up a Personal Defined Benefit Plan

  • Consult with a Plan Provider: Work with a bank 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: 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: File IRS Form 5500 annually to report on the plan’s status and compliance.
  • Permanence: A defined benefit plan needs to be in place for a minimum of five years. Plans established that are quickly terminated are often red flags and open to regulatory scrutiny.

401(k) Plans

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

Benefits of a 401(k) Plan

  • Tax Advantages: Contributions can be made before taxes, which reduces the employee’s taxable income. Alternatively, post-tax (Roth) contributions can be made. Investments grow tax-deferred.
  • Employer Matching: Many employers offer contribution matching, which can significantly boost an employee's retirement savings.
  • Higher Contribution Limits: For 2024, employees can contribute up to $twenty-three thousand dollars, 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 a range of investment options, management assistance, and staff training.
  • 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 preserve them for participants.
  • 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)

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 independent contractors, 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 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. Search for providers with multiple investment options and reduced fees.
  • Create a Plan Document: Establish the terms of your plan, including contribution limits, investment options, and loan provisions.
  • Open an Account: Establish 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. Keep accurate 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 enhance 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 versatile 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 one-fourth of an employee’s compensation or $$66k for 2024, 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: Yearly 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 grant employees ownership interest in the company, matching their interests with the business's success, and potentially helping set up 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 enhance incentive and commitment.
  • Tax Benefits for the Company: Contributions to the ESOP are deductible from taxes, and the company can also gain tax benefits related 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, offering potentially substantial retirement savings.
  • Succession Planning: ESOPs can be an effective tool for business succession, allowing owners to sell their shares to high-performing employees, who can slowly take the lead as previous owners ease into retirement.

Setting Up an ESOP

  • Feasibility Study: Conduct a feasibility study to determine if an ESOP is a viable option for your company.
  • Hire ESOP Advisors: Hire financial, legal, and ESOP advisors to aid in the setup process.
  • Create a Plan Document: Develop a plan document that defines the terms of the ESOP, including how shares will be distributed 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: Send in 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 combining resources with other employers, businesses can decrease administrative costs and fees associated with maintaining a retirement plan. This cost-sharing makes MEPs an attractive 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: An MEP allows small businesses that might not have the resources to provide a retirement plan on their own can deliver competitive retirement benefits, 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, 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 financial institution 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: Explain 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 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 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 Providence, RI

The particular, financial-based advantages to your Providence, RI small business retirement plan is dependent upon which plan you set up. That said, there are many general benefits of setting up a small business retirement plan for both businesses and workers. 60% of employees say that a retirement plan is a "very important" factor in 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

  • Better confidence in their retirement planning
  • Tax deductions
  • Contributions are simple with salary deferral
  • Contributions and investment gains are not taxed until they withdraw them
  • As interest accrues, small contributions grow into significant savings
  • Ability to conduct a 401(k) rollover if it's beneficial down the road

Business Benefits

  • Attract, recruit, and retain your best employees
  • Incentivize based on performance-based employer contributions
  • Employer contributions are tax-deductible
  • Highly customized plans are available
  • Tax credits that can help reduce startup costs

Do I Need a Financial Advisor in Providence, RI to Assist With My Small Business Retirement Plan?

Setting up small business retirement plans is not the same thing as setting up a personal savings plan at your local Providence, RI bank. While the federal government does not currently require any business to offer retirement savings options to workers, certain states require businesses with a certain number of employees to have a retirement plan. Providence, RI retirement consultants that are experienced in helping business owners create retirement plans are usually needed to not only make sure you get the benefits you're looking for, but that you follow evolving tax and business laws.

As your Providence, RI retirement plan consultants for your small business, our team will:

  • Help you choose the best plan for you, and the right custodian to hold plan assets
  • Assist you in setting up your plan, including adopting a written plan, establishing a trust for plan assets, helping employees understand how specific of the plan apply to their savings, and creating a record keeping system
  • Help you operate your plan by staying compliant 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 health

Correct Capital's Providence, RI financial planners are fiduciary advisors, meaning we are obligated, by law and by ethics to do what's best for you and your employees. We work for you, and not our own firm. Schedule a meeting with a member of our advisor team today.

Common Challenges and Solutions in Small Business Retirement Plans


Challenge 1: High Setup and Administrative Costs

Many small businesses are unwilling to set up retirement plans due to the perceived 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 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 paperwork, compliance, and record-keeping tasks. Providers offer comprehensive administrative support, including integration with payroll and fiduciary management.
  • 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. Host 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.

Challenge 4: Compliance with Regulations

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 adjust to 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. Update the plan as necessary to align with changes in your business environment and workforce demographics.

With the assistance of dedicated Providence, RI 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 Providence, RI include:

Small Business Retirement Plans Providence, RI | Financial Advisors | Retirement Consultants Near Providence

Small Business Retirement Plans in Providence, RI | Correct Capital

Operating 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* across the United States. To set up a retirement plan for your small business, or learn what other services we offer to business owners, call Correct Capital today at 314-930-401K or contact us through our website.

*as of March 2024

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