Small Business Retirement Plans in Salinas, CA

Small Business Retirement Plans in Salinas, CA. Offering a retirement plan to your Salinas, CA employees is a great way to retain talent, boost performance, and get those much-desired tax breaks. However, for most business owners, it can be difficult to know where to start. 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 Salinas, CA financial planners has over 70 years of combined experience helping business owners and their employees get the most out of their retirement plans and understanding the ins-and-outs of financial law. Whether you already have a plan and want insight as to how it's performing or are looking to create an entirely new one, speak to a financial advisor at Correct Capital today at 314-930-401K or contact us through our website.

What Types of Retirement Plans Are Available to Small Businesses in Salinas, CA?

Various financial custodians provide numerous savings plans and programs for small business owners and their employees in anticipation of retirement. Among the most common are:

SEP-IRA

This variant of individual retirement account is available to sole proprietor 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 deposits, which are modifiable and can vary annually. Additionally, the contributions are deductible from taxes.

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: With this plan, there is minimal paperwork and no need for yearly filings with the IRS beyond regular tax filings.

Setting Up a SEP-IRA

• Select a Financial Institution: To hold SEP IRA assets, select a provider for instance a bank, brokerage firm, or credit union. You can also opt for a digital financial institution.
• Execute a Written Agreement: Create a plan document and notify eligible employees.
• Make Contributions: Calculate and make contributions based on a set percentage of each employee’s compensation. Alternatively, make payments based on a percentage range determined by business performance.
• Maintain Records: Keep comprehensive records of all contributions made to employee accounts, including dates of contribution and figures. Additionally, ensure records are organized and easily accessible for review 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 deductions from their salaries, and employers can also contribute. This plan is low-cost 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 need for yearly filings for employers. This makes them perfect 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 immediately 100% vested, meaning employees have full ownership of all funds in their accounts as soon as contributions are made.

Setting Up a SIMPLE IRA

• Select a Financial Institution: Choose a 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 setting up 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 timely.

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 recurring costs 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 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 accounts.
• 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 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 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: To report on the plan’s status and compliance, file IRS Form 5500 annually.
• Permanence: A defined benefit plan should be maintained for five years. Quickly terminated plans often serve as indicators and may attract 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 contributions every year. 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 are made pre-tax, reducing the employee’s taxable income. Alternatively, contributions can be made post-tax (Roth). Investments grow without immediate tax.
• Employer Matching: Many employers offer match programs, which can significantly boost an employee's retirement savings.
• Higher Contribution Limits: For this year, employees can contribute up to $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 urgent financial needs.

Setting Up a 401(k) Plan

• Choose a Plan Provider: Choose a provider that offers multiple investment opportunities, administrative support, and staff training.
• Create a Plan Document: Outline 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 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 changes in a timely manner.

Individual 401(k)

This plan, also known as a i401(k), is designed to provide the same benefits as a business 401(k), but specifically for individuals who are self-employed, 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. Additionally, you have the option 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. Look for providers with various investment options and reduced fees.
• Create a Plan Document: Create 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. 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 incentivize them to boost the company’s profitability.

Benefits of a Profit Sharing Plan

• Flexibility in Contributions: Employers can determine each year how much to contribute based on the company's profitability. This makes it an adaptable 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 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 25% of an employee’s compensation or $$66k for this year, making it a generous 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: Write 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: Annually decide the amount to contribute based on company profits and the predetermined formula.
• File Necessary Forms: File IRS Form 5500 every 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 mainly in the employer's stock. ESOPs provide employees with an ownership stake in the company, aligning their interests with the business's success, and potentially aiding in establishing the business's future leadership.

Benefits of an ESOP

• Employee Ownership: ESOPs provide employees with an partial ownership in the company, which can heighten drive 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 profit from the growth in the value of the company’s stock, granting potentially substantial retirement savings.
• Succession Planning: ESOPs can be an effective method for business succession, permitting owners to sell their shares to their best employees, who can steadily 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 suitable 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 defines the terms of the ESOP, including how shares will be assigned and vested.
• Establish a Trust: Establish 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 perks 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 economical and administratively efficient way to offer retirement benefits to their employees.

Benefits of an MEP

• Cost Savings: By sharing resources with other employers, businesses can reduce 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 facilitate 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: An MEP allows small businesses that might not have the resources to provide a retirement plan on their own can provide competitive retirement benefits, which helps 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, diminishing 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: 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 pros and cons 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 trusted financial advisor like those at Correct Capital will be able to help you determine which plan works best for you and your team.

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Benefits of Setting Up a Small Business Retirement Plan in Salinas, CA

The specific, financial-based benefits for your Salinas, CA 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. 60% of employees say that a retirement plan is a "very important" factor in how good they feel at their present employment, while employers reap the benefits both during tax season and in office productivity. Companies and employees will both enjoy:

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

Opening small business retirement plans is not the same thing as setting up a personal savings plan at your local Salinas, CA bank. While the federal government does not currently require any company to offer retirement savings options to employees, some states require businesses of a certain size to offer access to a retirement plan. Salinas, CA retirement consultants that have spent years helping business owners set up retirement plans are usually needed to not only make sure the plan is right for you, but that you abide by evolving tax and business laws.

As your Salinas, CA retirement plan consultants for your small business, our financial planners 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, establishing a trust for plan assets, helping employees understand how specific of the plan apply to their savings, 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 component to their ongoing financial health

Correct Capital's Salinas, CA financial planners are fiduciary advisors, meaning we are legally and ethically obligated to only work in your best interest. As an independent firm, we have the freedom and flexibility to tailor our offerings to best suit the goals of our clients. Request a consultation with a member of our advisor team today.

Common Challenges and Solutions in Small Business Retirement Plans

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Challenge 1: High Setup and Administrative Costs

Many small businesses are reluctant to set up retirement plans due to the expected high costs.

Solution:

• SIMPLE IRA and SEP IRA: These plans have reduced setup and administrative costs compared to traditional 401(k) plans.
• Tax Credits: The SECURE Act 2.0 offers tax credits for small businesses to offset the costs of setting up retirement plans. Businesses can receive a credit of up to $5,000 annually for three years to cover startup costs, and 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 payroll processing and fiduciary responsibilities.
• Multiple Employer Plans (MEPs): Being part of an MEP can significantly reduce the administrative burden as the MEP sponsor handles most of the administrative duties, including compliance and reporting.

Challenge 3: Employee Participation and Engagement

Minimal employee engagement can limit the effectiveness of a retirement plan.

Solution:

• Automatic Enrollment: 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.

Issue 4: Regulatory Compliance

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. We can assist with plan setup, annual filings, and ongoing management.
• Use of Technology: Many retirement plan providers offer online platforms that help manage compliance by automating reporting, tracking contributions, and ensuring that all regulatory requirements are met.

Challenge 5: Flexibility and Adaptability

Business owners need plans that can 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. Adjust the plan as necessary to align with changes in your business environment and workforce demographics.

With the support of dedicated Salinas, CA 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 Salinas, CA include:

• Financial Planning
• Retirement Plan Consultants
• Fiduciary Financial Advisor

Small Business Retirement Plans in Salinas, CA | 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 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, call Correct Capital today at 314-930-401K or contact us online.

*as of March 2024