Small Business Retirement Plans in Santa Ana, CA

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Small Business Retirement Plans in Santa Ana, CA. Offering a retirement plan to your Santa Ana, CA employees is a great way to retain talent, incentivize higher performance, and get those much-desired tax breaks. However, for most business owners, it can be hard to know how to proceed once they decide to establish one. What type of plan is best for your business? 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 Santa Ana, CA financial planners has over 70 years of combined experience helping business owners and their employees reap the rewards of their retirement plans and understanding the complexity of financial law. For anything from initial setup and employee guidance to fine-tuning an existing plan, call Correct Capital today at 314-930-401K or contact us through our website.



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

Various financial custodians provide numerous savings plans and retirement accounts for small business owners and their employees in anticipation of retirement. The most prevalent ones are:


SEP-IRA

This type of individual retirement account is available to single-owner 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 tax-free. Employers can deduct contributions they make on behalf of their employees. Only employers make contributions, which are modifiable and can vary year-to-year. Additionally, the contributions are eligible for tax deduction.

Benefits of a SEP-IRA

  • High Contribution Limits: Employers have the ability to contribute up to 25% of each employee’s compensation, with the maximum set at $69,000 for 2024.
  • Flexibility: This plan does not require employers to contribute every year, which is ideal for businesses with changing profits.
  • Simple Administration: This plan requires minimal paperwork and does not require annual filings with the IRS except for regular tax filings.

Setting Up a SEP-IRA

  • Select a Financial Institution: You can choose a provider, such as a bank, brokerage firm, or credit union, to hold SEP IRA assets. Alternatively, consider an online financial institution.
  • Execute a Written Agreement: Communicate with eligible employees by establishing a written agreement for the SEP IRA plan.
  • Make Contributions: To make contributions, calculate an established percentage of each employee’s compensation. Alternatively, deposit funds based on a range of percentages determined by business profits.
  • Maintain Records: Maintaining records involves keeping comprehensive records of all contributions made to employee accounts, including dates of contribution and sums. Additionally, ensure records are 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 up to 100 employees. Employees can make contributions to their own accounts through payroll deductions, and employers can also make contributions. This plan is affordable 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 straightforward to establish and maintain, with no annual filing requirements for employers. This makes them perfect for small businesses with constrained administrative resources.
  • Employer Contributions: Employers are required to make contributions, either by matching employee contributions up to 3% of their salary or making a non-elective contribution of 2% of each eligible employee’s salary.
  • Employee Contributions: Employees can contribute up to $16,000 in 2024, with an 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 bank, mutual fund, or brokerage firm to hold the SIMPLE IRA assets.
  • Execute a Written Agreement: Use IRS Form 5304-SIMPLE or 5305-SIMPLE to create a written agreement outlining the terms of the plan.
  • Employee Notification: Notify eligible employees about the plan, including information on how to participate and the benefits provided.
  • Employee Enrollment: Assist employees in establishing their accounts and making their contributions.
  • Employer Contributions: Decide whether to match 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 sole proprietor 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 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 401(k)s.
  • 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 an investment firm or retirement plan provider that has experience with 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 a financial analyst calculate the necessary contributions to meet the promised benefits, ensuring compliance with IRS requirements.
  • Annual Administration: To manage the plan’s investments, ensure that required contributions are made annually and conduct annual actuarial reviews 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: To ensure compliance, a defined benefit plan must be in place for five years. Plans that are quickly terminated can be red flags and subject to regulatory scrutiny.

401(k) Plans

401(k)s are available to private companies of any size, and are highly adaptable. Employees may defer 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 are made tax-free initially, reducing the employee’s taxable income. Alternatively, contributions can be made post-tax (Roth). Investments grow tax-free until withdrawn.
  • 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 $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: Pick a provider that offers a range of investment choices, administrative services, and employee education.
  • Create a Plan Document: Detail 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: Ensure detailed 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 traditional 401(k), but specifically 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 non-elective contribution up to a quarter 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 multiple investment options and lower fees.
  • Create a Plan Document: Establish the terms of your plan, including contribution limits, investment options, and loan provisions.
  • Open an Account: Open your Individual 401(k) account with the chosen provider. This typically involves completing an application and providing necessary documentation.
  • Make Contributions: Determine your contribution amounts for the year and make regular contributions. Ensure you stay within the IRS limits for total contributions.
  • Compliance and Reporting: If your plan assets exceed $250,000, you must file IRS Form 5500 annually. Develop a meticulous record system of all contributions and transactions.

Profit Sharing Plans

A Profit Sharing Plan is a type of retirement plan where employers can make 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 determine each year how much to contribute based on the company's profitability. This makes it an flexible option for businesses with fluctuating earnings.
  • Tax Advantages: Contributions are tax-deductible for the business, reducing taxable income. Additionally, the funds grow tax-free until withdrawal, which can benefit employees' long-term savings.
  • Employee Motivation and Retention: Linking contributions to company profits can enhance employee morale and loyalty, as employees directly benefit from the company’s success.
  • High Contribution Limits: Employers can contribute up to the lesser of 25% of an employee’s compensation or $sixty-six thousand dollars for 2024, making it a advantageous option for employee benefits.

Setting Up a Profit Sharing Plan

  • Choose a Plan Provider: Select 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: Educate 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 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.

Benefits of an ESOP

  • Employee Ownership: ESOPs provide employees with an ownership stake in the company, which can boost incentive and dedication.
  • Tax Benefits for the Company: Contributions to the ESOP are tax-deductible, and the company can also receive 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 considerable 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 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 appropriate option for your company.
  • Hire ESOP Advisors: Hire financial, legal, and ESOP advisors to facilitate the setup process.
  • Create a Plan Document: Draft a plan document that specifies the terms of the ESOP, including how shares will be distributed and vested.
  • Establish a Trust: Initiate an ESOP trust to hold the company stock on behalf of employees.
  • Communicate with Employees: Inform 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 ensure compliance.

Multiple Employer Plans (MEPs)

A Multiple Employer Plan (MEP) is a type of retirement plan that allows multiple, unrelated employers to take part in a single retirement plan and achieve economies of scale. MEPs are designed to provide small businesses with a affordable and administratively efficient way to offer retirement benefits to their employees.

Benefits of an MEP

  • Cost Savings: By pooling resources with other employers, businesses can lower administrative costs and fees associated with maintaining a retirement plan. This cost-sharing makes MEPs an attractive option for small businesses looking to save on expenses.
  • Administrative Efficiency: MEPs facilitate 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: Small businesses that might not have the resources to offer a retirement plan on their own can provide competitive retirement benefits through an MEP, which can help to attract and retain talented employees and create 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 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 an investment firm 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 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.



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

The specific, financial-based advantages to your Santa Ana, CA small business retirement plan will largely be based on the specific plan you set up. However, there are many general benefits of setting up a small business retirement plan for both businesses and workers. Three out of five employees responded to a survey saying 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 establishing a small business retirement plan:


Employee Benefits

  • Better confidence in their retirement planning
  • Reduced taxable income
  • Contributions can be easily made through salary deferral
  • They do not pay taxes on money they put in or how the money grew until they withdraw them
  • Over the years small contributions grow into considerable sums of money
  • Ability to perform a 401(k) rollover if they change employers

Business Benefits

  • Attract, recruit, and retain high performers
  • Promote great work ethic
  • Deduct your taxable income from your taxable profits
  • Highly customized plans are available
  • Tax credits upon initial set-up

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

Opening small business retirement plans is far different from setting up a personal savings plan at your local Santa Ana, CA bank. While the federal government does not currently require any employer to offer retirement savings options to workers, certain states require businesses with a minimum number of employees to have a retirement plan. Santa Ana, CA retirement consultants that are experienced in helping business owners set up retirement plans are usually needed to not only make sure the plan is right for you, but that you follow ever-changing tax and business laws.

As your Santa Ana, CA retirement plan consultants for your small business, our financial planners will:

  • Help you elect the best plan for you, and which financial institution should hold the assets
  • Assist you in establishing your plan, including creating a document that complies with IRS code, establishing a trust for plan assets, helping employees understand the plan's terms, and creating a record keeping system
  • Help you operate your plan by staying compliant with relevant laws, managing the plan's assets, and distributing benefits
  • Help educate your employees on your plan, its benefits, and how it can serve as a important aspect of their ongoing financial health

Correct Capital's Santa Ana, CA advisors hold ourselves to the fiduciary standard, meaning we are legally and ethically obligated to do what's best for you and your employees. The only thing we sell is trust. 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 decreased 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 administrative burden 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 services.
  • 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

Limited employee involvement 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 raise 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.

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 change with 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 help of dedicated Santa Ana, 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 Santa Ana, CA include:

Small Business Retirement Plans Santa Ana, CA | Financial Advisors | Retirement Consultants Near Santa Ana

Small Business Retirement Plans in Santa Ana, CA | Correct Capital

Operating a small business involves a plethora of moving parts and tasks to ensure things run smoothly — setting up and maintaining a small business retirement plan doesn't have to be one of them. Correct Capital currently manages over 37 plans for a variety of types of businesses, and represents over $212 million in total plan assets* across the United States. 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 through our website.

*as of March 2024

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