Small Business Retirement Plans in Santa Rosa, CA

Small Business Retirement Plans in Santa Rosa, CA. Offering a retirement plan to your Santa Rosa, CA employees is a great way to retain talent, incentivize higher performance, and get those much-needed tax reductions. However, for most business owners, it can be hard 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 do I do when I want to change plans, or if I'm retiring and my business will no longer be running? Correct Capital's team of Santa Rosa, CA financial planners is committed to helping business owners and their employees reap the benefits of their retirement plans and understanding the specifics of their individual plans and benefits. For anything from initial setup and employee education to making annual adjustments, speak to a financial advisor at Correct Capital today at 314-930-401K or contact us online.

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

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. 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 same 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 flexible and can vary annually. Additionally, the contributions are deductible from taxes.

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: This plan does not require employers to contribute every year, which is ideal for businesses with variable profits.
• Simple Administration: Minimal paperwork and no annual filing requirements with the IRS beyond regular tax filings.

Setting Up a SEP-IRA

• Select a Financial Institution: A bank, brokerage firm, or credit union can be chosen financial institution.
• Execute a Written Agreement: Establish a plan document and inform eligible employees of the SEP IRA plan.
• Make Contributions: Contributions can be made by calculating a set percentage of each employee’s compensation. Alternatively, contribute based on a range of percentages determined by business earnings.
• Maintain Records: Keep complete records of all contributions made to employee accounts, including dates and figures. Additionally, ensure records are well-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 up to 100 employees. Employees can fund their own accounts through salary deferrals, and employers can also contribute. This plan is affordable 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 need for yearly filings for employers. This makes them suitable for small businesses with limited 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 extra 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 financial institution, investment 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 details 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 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 an annual maximum limit. While this plan is highly customizable and allows for significant contributions, there may be startup costs 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-deferred until distribution.

Setting Up a Personal Defined Benefit Plan

• Consult with a Plan Provider: Work with a financial institution 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 a financial analyst 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: A defined benefit plan needs to be in place for at least five years. Plans established that are quickly terminated are often signals and open 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 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 without immediate tax.
• Employer Matching: Many employers offer match programs, which can significantly boost an employee's retirement savings.
• Higher Contribution Limits: For 2024, employees can contribute up to $twenty-three thousand dollars, with an additional $$7.5k 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: Choose a provider that offers a range of investment options, administrative services, 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 preserve them for participants.
• Develop a Recordkeeping System: Maintain precise 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)

This plan, also known as a Individual 401(k), is designed to provide the same benefits as a company 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 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: Choose a financial institution or brokerage that offers Individual 401(k) plans. Search for providers with a range of investment options and minimal fees.
• Create a Plan Document: Establish 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: Decide on 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. Keep accurate records of all contributions and transactions.

Profit Sharing Plans

A Profit Sharing Plan is a type of retirement plan where employers can make voluntary contributions to employee retirement accounts, determined by the company's profits. These plans are intended to share the company’s success with its employees and encourage them to boost the company’s profitability.

Benefits of a Profit Sharing Plan

• Flexibility in Contributions: Employers can decide each year how much to contribute based on the company's profitability. This makes it an adaptable 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 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 this year, making it a generous option for employee benefits.

Setting Up a Profit Sharing Plan

• Choose a Plan Provider: Pick a bank or retirement plan provider to administer the plan.
• Create a Plan Document: Write a plan document outlining the profit-sharing formula, eligibility requirements, and vesting schedule.
• Communicate with Employees: Inform 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 annually to report the plan’s status and compliance.

Employee Stock Ownership Plan (ESOPs)

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

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

Benefits of an ESOP

• Employee Ownership: ESOPs offer employees with an equity share in the company, which can boost motivation 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 profit from the growth in the value of the company’s stock, providing potentially significant retirement savings.
• Succession Planning: ESOPs can be an effective strategy for business succession, permitting owners to sell their shares to their best employees, who can gradually take the lead as previous owners move into retirement.

Setting Up an ESOP

• Feasibility Study: Perform a feasibility study to determine if an ESOP is a appropriate option for your company.
• Hire ESOP Advisors: Retain financial, legal, and ESOP advisors to aid in the setup process.
• Create a Plan Document: Develop a plan document that details the terms of the ESOP, including how shares will be apportioned and vested.
• Establish a Trust: Establish 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 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 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 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 streamline 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 offer a retirement plan on their own can provide competitive retirement benefits, which helps to attract and retain talented employees and give 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 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 an investment firm or retirement plan provider to administer the plan.
• Adopt the Plan: Each participating employer must formally adopt the MEP by signing an adoption agreement and providing necessary employee information.
• Employee Enrollment: Explain the plan details to employees and facilitate their enrollment in the MEP.
• Ongoing Administration: The MEP sponsor handles the majority of the administrative tasks, including compliance with IRS and Department of Labor requirements, filing necessary forms, and managing plan assets.

There are 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 benefits, fees, required minimum distributions, contribution limits, and more. A respected 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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Why You Should Set Up a Small Business Retirement Plan in Santa Rosa, CA

The particular, financial-based advantages to your Santa Rosa, CA small business retirement plan will largely be based on the specific plan you set up. However, a small business retirement plan, whichever one you choose, benefit employers and employees in the same way. 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 reap the benefits both during tax season and in office productivity. Companies and employees will both enjoy:

Do I Need a Financial Advisor in Santa Rosa, CA to Help With My Small Business Retirement Plan?

Creating small business retirement plans is far different from setting up a personal savings plan at your local Santa Rosa, CA bank. While the federal government does not currently require any company to offer retirement savings options to workers, certain states require employers of a certain size to have a retirement plan. Santa Rosa, CA retirement consultants that have spent years helping business owners create retirement plans are usually needed to not only ensure the plan is right for you, but that you follow frequently chancing tax and business laws.

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

• Help you decide which plan works best for you and your employees, and which financial institution should hold the assets
• Assist you in establishing your plan, including creating a document that complies with IRS code, arranging a trust for plan assets, helping employees understand the plan's terms, and creating a record keeping system
• Help you operate your plan by adapting as we need to to 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 journey

Correct Capital's Santa Rosa, CA advisors hold ourselves to the fiduciary standard, meaning we are legally and ethically bound to do what's best for you and your employees. As an independent firm, we have the freedom and flexibility to tailor our offerings to best suit the goals of our clients. Schedule a meeting 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 unwilling to set up retirement plans due to the assumed 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 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 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

Low employee participation 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. 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

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: 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 help of dedicated Santa Rosa, 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 Rosa, CA include:

• 401(k) Audit
• High-Net-Worth Wealth Management
• Retirement Planner
• Financial Planning
• Retirement Plan Consultants
• Fiduciary Financial Advisor

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

Owning a small business involves a plethora 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* 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