Small Business Retirement Plans in Raleigh, NC. Starting up a retirement plan for you and your Raleigh, NC employees offers a variety of benefits, including tax reductions and a great way to attract and retain talent. 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 I'll 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 Raleigh, NC financial planners is dedicated to helping business owners and their employees get the most out of their retirement plans and understanding the specifics of federal regulations. For anything from initial setup and employee education to making annual adjustments, call Correct Capital today at 314-930-401K or contact us online.
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 Raleigh, NC?
The federal government and various financial custodians offer a variety of savings plans and accounts for small business owners and their employees in anticipation of retirement. The most prevalent ones are:
SEP-IRA
This form 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-free. 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: 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 each year, which is ideal for businesses with fluctuating profits.
- Simple Administration: With this plan, there is minimal paperwork and no need for yearly filings with the IRS except for regular tax filings.
Setting Up a SEP-IRA
- Select a Financial Institution: Selecting a financial institution involves choosing an institution such as a bank, brokerage firm, or credit union. You can also opt for a digital financial institution.
- Execute a Written Agreement: Notify eligible employees by establishing a plan document for the SEP IRA plan.
- Make Contributions: To make contributions, calculate a set percentage of each employee’s compensation. Alternatively, deposit funds based on a variable percentage determined by business profits.
- Maintain Records: Maintaining records involves keeping comprehensive records of all contributions made to employee accounts, including dates of contribution and figures. Additionally, ensure records are neatly arranged and easily accessible for audit purposes.
SIMPLE IRA
"SIMPLE" stands for "Savings Investment Match Plan for Employees," and these IRAs are for businesses with up to 100 employees. Employees can make contributions to their own accounts through payroll deductions, and employers can also make contributions. 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 simple 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, 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 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, investment fund, or investment brokerage to hold the SIMPLE IRA assets.
- Execute a Written Agreement: Use IRS Form 5304-SIMPLE or 5305-SIMPLE to create a written agreement outlining the terms of the plan.
- Employee Notification: Notify eligible employees about the plan, including information on how to participate and the benefits provided.
- Employee Enrollment: Assist employees in setting up their accounts and making their contributions.
- Employer Contributions: Decide whether to match up to employee contributions or make non-elective contributions, and ensure these are made timely.
Personal Defined Benefit Plan
This plan is solely 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 the current year) depending on age, income, and the desired retirement benefit.
- Predictable Retirement Benefits: The plan promises a specific benefit at retirement, providing more predictability for retirement planning compared to defined contribution plans like 401k plans.
- Tax Advantages: Contributions are tax-deductible, reducing current taxable income. The investments grow tax-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 scheme document that details the terms of the plan, including contribution requirements and how benefits are calculated.
- 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: To ensure compliance, a defined benefit plan must be in place for five years. Plans that are quickly terminated can be indicators and subject to regulatory scrutiny.
401(k) Plans
401(k)s are available to private companies of any size, and are highly customizable. 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 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 matching contributions, which can significantly boost an employee's retirement savings.
- Higher Contribution Limits: For 2024, employees can contribute up to $$23k, with an additional $seven thousand five hundred dollars catch-up contribution for those aged 50 and older.
- Loan Options: Participants can often take loans against their 401(k) balance, providing flexibility in case of financial emergencies.
Setting Up a 401(k) Plan
- Choose a Plan Provider: Pick a provider that offers a range of investment options, administrative services, and staff training.
- Create a Plan Document: Draft 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 employees.
- Develop a Recordkeeping System: Develop a meticulous record system 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 business 401(k), this plan is also known as a Individual 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. Seek out providers with a range of 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: 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 $250,000, you must file IRS Form 5500 annually. Ensure detailed 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 motivate them to contribute to 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-deferred, which can benefit employees' long-term savings.
- Employee Motivation and Retention: Linking contributions to company profits can increase employee morale and loyalty, as employees directly benefit from the company’s success.
- High Contribution Limits: Employers can contribute up to the lesser of a quarter of an employee’s compensation or $66,000 for 2024, making it a generous option for employee benefits.
Setting Up a Profit Sharing Plan
- Choose a Plan Provider: Select 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: 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 retirement plan that invests primarily in the employer's stock. ESOPs provide employees ownership interest in the company, aligning their goals with the business's success, and potentially establishing the business's upcoming generation of leadership.
Benefits of an ESOP
- Employee Ownership: ESOPs grant employees with an partial ownership in the company, which can enhance incentive and dedication.
- Tax Benefits for the Company: Contributions to the ESOP are deductible from taxes, and the company can also gain tax benefits associated with the sale of stock to the ESOP.
- Retirement Savings for Employees: Employees gain from the growth in the value of the company’s stock, offering potentially substantial retirement savings.
- Succession Planning: ESOPs can be an effective strategy for business succession, enabling owners to sell their shares to their best employees, who can gradually take the lead as previous owners ease into retirement.
Setting Up an ESOP
- Feasibility Study: Carry out a feasibility study to determine if an ESOP is a appropriate option for your company.
- Hire ESOP Advisors: Engage financial, legal, and ESOP advisors to help with the setup process.
- Create a Plan Document: Compose a plan document that outlines the terms of the ESOP, including how shares will be allocated and vested.
- Establish a Trust: Set up 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: 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 combining resources with other employers, businesses can decrease 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 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, lessening 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: 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 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 incentives, fees, required minimum distributions, contribution limits, and more. A reputed financial advisor like those at Correct Capital will be able to help you determine which plan works best for you and your team.
Why You Should Set Up a Small Business Retirement Plan in Raleigh, NC
The particular, financial-based advantages to your Raleigh, NC small business retirement plan is dependent upon which plan you set up. That said, a small business retirement plan, whichever one you choose, has universal benefits. Over half of employees 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 having a small business retirement plan:
Employee Benefits
- More financial security in retirement
- Tax deductions
- Contributions can be easily made through payroll deductions
- They do not pay taxes on contributions or how the money grew until distributed
- As interest accrues, small contributions grow into considerable savings
- Ability to perform a 401(k) rollover if they change employers
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 upon initial set-up
Why Should I Consult With a Financial Advisor in Raleigh, NC to Assist With My Small Business Retirement Plan?
Setting up small business retirement plans is far different from setting up a personal account at your local Raleigh, NC bank. While the federal government does not currently require any company to offer retirement savings options to employees, some states require employers of a certain size to offer access to a retirement plan. Raleigh, NC retirement consultants that have spent years helping business owners set up retirement plans are usually needed to not only ensure you and your employees get the most out of your plan, but that you follow ever-changing tax and business laws.
As your Raleigh, NC retirement plan consultants for your small business, our team will:
- Help you choose the "right" plan for you, and the right custodian to hold plan assets
- Assist you in setting up your plan, including adopting a written plan, arranging a trust for plan assets, helping employees understand how specific of the plan apply to their retirement, and implementing 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 part of their ongoing financial success
Correct Capital's Raleigh, NC 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 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 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, 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 documentation, 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
Low employee participation 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. 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: 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 support of dedicated Raleigh, NC 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 Raleigh, NC include:
- 401(k) Audit
- High-Net-Worth Wealth Management
- Retirement Planner
- Financial Planning
- Retirement Plan Consultants
- Fiduciary Financial Advisor
Small Business Retirement Plans in Raleigh, NC | Correct Capital
Owning a small business involves countless daily, monthly, and annual tasks to ensure things run smoothly — setting up and maintaining a small business retirement plan shouldn't 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* 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 online.
*as of March 2024