Small Business Retirement Plans in Richmond, VA

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Small Business Retirement Plans in Richmond, VA. Offering a retirement plan to your Richmond, VA employees is a great way to retain talent, incentivize higher performance, and get those much-desired tax breaks. While the benefits may be clear, the complexities of setting up and maintaining small business retirement plans are not. 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 retiring and my business will no longer be running? Correct Capital's team of Richmond, VA financial planners is committed to helping business owners and their employees get the most out of having a sound retirement plans and navigate the specifics of their individual plans and benefits. For anything from initial setup and employee education 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 Richmond, VA?

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. These include:


SEP-IRA

This variant of individual retirement account is available to owner-only businesses, freelancers, and businesses with very few employees. It follows the same rules as a traditional IRA, where the money put into the account grows without taxes. Employers can deduct contributions they make on behalf of their employees. Only employers make deposits, which are modifiable and can vary from year to year. Additionally, the contributions are tax-deductible.

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: Employers are not required to contribute each year, making it ideal for businesses with changing profits.
  • Simple Administration: This 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: digital financial institution.
  • Execute a Written Agreement: To establish the SEP IRA plan, create a contractual arrangement and inform eligible employees.
  • Make Contributions: Calculate and make contributions based on a set percentage of each employee’s compensation. Alternatively, deposit funds based on a percentage range determined by business profits.
  • Maintain Records: Keep comprehensive records of all contributions made to employee accounts, including dates and figures. Additionally, ensure records are 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 up to 100 employees. Employees can make contributions to their own accounts through deductions from their salaries, and employers can also make contributions. This plan is inexpensive as it's mainly funded by employees, and their contributions can be tax deductible.

Benefits of a SIMPLE IRA

  • Ease of Setup and Administration: SIMPLE IRAs are straightforward to establish and maintain, with no annual filing requirements for employers. This makes them suitable 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 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, 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 promptly.

Personal Defined Benefit Plan

This plan is specifically for single-owner 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 yearly cap. 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 $$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 accounts.
  • Tax Advantages: Contributions are tax-deductible, reducing current taxable income. The investments grow tax-free 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 written plan 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: 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: To ensure compliance, a defined benefit plan must be in place for five years. Plans that are quickly terminated can be signals and subject to regulatory scrutiny.

401(k) Plans

401(k)s are available to corporations of any size, and are highly adaptable. Employees may defer 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 can be made before taxes, which reduces the employee’s taxable income. Alternatively, post-tax (Roth) contributions can be made. Investments grow tax-free until withdrawn.
  • Employer Matching: Many employers offer contribution matching, which can significantly boost an employee's retirement savings.
  • Higher Contribution Limits: For this year, employees can contribute up to $twenty-three thousand dollars, 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 unexpected expenses.

Setting Up a 401(k) Plan

  • Choose a Plan Provider: Pick a provider that offers multiple investment opportunities, management assistance, and employee education.
  • Create a Plan Document: Prepare 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: 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 company 401(k), this plan is also known as a i401(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 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 a range of investment options and lower fees.
  • Create a Plan Document: Prepare the terms of your plan, including contribution limits, investment options, and loan provisions.
  • Open an Account: Set up your Individual 401(k) account with the chosen provider. This typically involves filling out 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 $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 voluntary contributions to employee retirement accounts, determined by the company's profits. These plans are intended to share the company’s success with its employees and incentivize them to boost the company’s profitability.

Benefits of a Profit Sharing Plan

  • Flexibility in Contributions: Employers can choose each year how much to contribute based on the company's profitability. This makes it an flexible option for businesses with variable earnings.
  • Tax Advantages: Contributions are tax-deductible for the business, reducing taxable income. Additionally, the funds grow tax-free until withdrawal, which can benefit employees' long-term savings.
  • Employee Motivation and Retention: Linking contributions to company profits can increase employee morale and loyalty, as employees directly benefit from the company’s success.
  • High Contribution Limits: Employers can contribute up to the lesser of 25% of an employee’s compensation or $66,000 for this year, making it a advantageous option for employee benefits.

Setting Up a Profit Sharing Plan

  • Choose a Plan Provider: Choose 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: Notify employees about the plan, how it works, and the benefits they can expect.
  • Determine Contributions: Each year decide the amount to contribute based on company profits and the predetermined formula.
  • File Necessary Forms: File IRS Form 5500 each year to report the plan’s status and compliance.

Employee Stock Ownership Plan (ESOPs)

An Employee Stock Ownership Plan (ESOP) is a retirement plan that invests primarily in the employer's stock. ESOPs give employees ownership interest in the company, aligning their interests with the business's success, and potentially helping set up the business's next generation of leadership.

An Employee Stock Ownership Plan (ESOP) is a retirement plan that invests primarily in the employer's stock. ESOPs give employees ownership interest in the company, matching their interests with the business's success, and potentially preparing the business's upcoming generation of leadership.

Benefits of an ESOP

  • Employee Ownership: ESOPs grant employees with an equity share in the company, which can improve incentive and loyalty.
  • Tax Benefits for the Company: Contributions to the ESOP are eligible for tax deduction, and the company can also obtain tax benefits pertaining to the sale of stock to the ESOP.
  • Retirement Savings for Employees: Employees gain from the growth in the value of the company’s stock, offering potentially considerable retirement savings.
  • Succession Planning: ESOPs can be an effective strategy for business succession, enabling 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 appropriate option for your company.
  • Hire ESOP Advisors: Engage financial, legal, and ESOP advisors to assist with the setup process.
  • Create a Plan Document: Develop a plan document that details the terms of the ESOP, including how shares will be assigned and vested.
  • Establish a Trust: Initiate an ESOP trust to hold the company stock on behalf of employees.
  • Communicate with Employees: Educate 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 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 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 decrease administrative costs and fees associated with maintaining a retirement plan. This cost-sharing makes MEPs an favorable option for small businesses looking to save on expenses.
  • Administrative Efficiency: MEPs ease the management of retirement plans by combining administrative tasks. This includes plan setup, compliance, reporting, and participant communication, which are handled by the MEP sponsor or administrator.
  • Improved Access to Benefits: Through an MEP, small businesses that might not have the resources to provide a retirement plan on their own to deliver competitive retirement benefits, which helps to attract and retain talented employees and create 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 become part of an existing MEP or collaborate with other businesses to form a new one. This step involves selecting a MEP sponsor who will manage the plan.
  • Select a Plan Provider: The MEP sponsor will work with 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, submitting required documents, and managing plan assets.

There are advantages and disadvantages to each plan, and which may be "best" for you will depend on your business and your and your employees' needs. Different plans and accounts have different tax 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 Richmond, VA

The specific, financial-based advantages to your Richmond, VA small business retirement plan is dependent upon which plan you choose. However, a small business retirement plan, whichever one you choose, has universal benefits. 60% of workers responded to a survey stating it is a "very important" factor in job satisfaction, while employers reap the benefits both during tax season and in office productivity. Companies and employees will both enjoy:


Employee Benefits

  • More financial security in retirement
  • Tax deductions
  • Contributions are simple with payroll deductions
  • Contributions and investment gains are not taxed until they take them out
  • As interest accrues, small contributions grow into considerable savings
  • Ability to perform a 401(k) rollover if it's beneficial down the road

Business Benefits

  • Attract, recruit, and retain talent
  • Incentivize based on performance-based employer contributions
  • Employer contributions are tax-deductible
  • Flexible plan options to fit your plan to your needs
  • Tax credits that can help reduce startup costs

Do I Need a Financial Advisor in Richmond, VA 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 Richmond, VA bank. While the federal government does not currently obligate any business to offer retirement savings options to workers, some states require employers of a certain size to have a retirement plan. Richmond, VA 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 follow ever-changing tax and business laws.

As your Richmond, VA retirement plan consultants for your small business, our financial planners will:

  • Help you decide the best plan for you, and the right custodian to hold plan assets
  • Assist you in establishing your plan, including adopting a written plan, establishing a trust for plan assets, helping employees understand how specific of the plan apply to their retirement, 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 they can use it as a part of their ongoing financial health

Correct Capital's Richmond, VA advisors hold ourselves to the fiduciary standard, meaning we are legally and ethically obligated to only offer advice based on what we believe is in your best interest. The only product we offer is trust. 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 hesitate to set up retirement plans due to the perceived high costs.

Solution:

  • SIMPLE IRA and SEP IRA: These plans have minimal 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 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 documentation, compliance, and record-keeping tasks. Providers offer comprehensive administrative support, including payroll integration 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

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 increase 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

Handling 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: 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. Modify the plan as necessary to align with changes in your business environment and workforce demographics.

With the assistance of dedicated Richmond, VA financial advisors and retirement plan specialists, your business can manage these challenges to create a small business retirement plan that works for both you and your employees.

Other services we offer in Richmond, VA include:

Small Business Retirement Plans Richmond, VA | Financial Advisors | Retirement Consultants Near Richmond

Small Business Retirement Plans in Richmond, VA | Correct Capital

Owning a small business involves a mountain 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 for a variety of types of businesses, and represents over $212 million in total plan assets* throughout the country. To set up a retirement plan for your small business, or learn what other services we offer to business owners, speak to a financial advisor at Correct Capital today at 314-930-401K or contact us online.

*as of March 2024

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