Small Business Retirement Plans in Sioux Falls, SD

Small Business Retirement Plans in Sioux Falls, SD. Offering a retirement plan to your Sioux Falls, SD employees is a great way to retain talent, incentivize higher performance, and get those much-desired tax reductions. However, for most business owners, it can be hard to know where to start. What type of plan is best for your business? What are the different laws that apply to different plans? What happens when I want to change plans, or if I'm retiring and my business will no longer be running? Correct Capital's team of Sioux Falls, SD financial planners is committed to helping business owners and their employees reap the benefits of their retirement plans and navigate the complexity of federal regulations. For anything from initial setup and employee education to fine-tuning an existing plan, 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 Sioux Falls, SD?

The federal government and various financial custodians offer numerous retirement plans and retirement accounts for small business owners and their employees to better prepare for retirement. Among the most common are:

SEP-IRA

This type 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 tax-deferred. Employers can deduct contributions they make on behalf of their employees. Only employers make contributions, which are adjustable and can vary from year to year. Additionally, the contributions are deductible from taxes.

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: Employers are not required to contribute every year, making it suitable for businesses with variable profits.
• Simple Administration: The 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: Choose a provider to hold SEP IRA assets, like a bank, brokerage firm, or credit union. Alternatively, opt for a digital financial institution.
• Execute a Written Agreement: Establish a contractual arrangement and advise eligible employees of the SEP IRA plan.
• Make Contributions: To make contributions, calculate a fixed percentage of each employee’s compensation. Alternatively, deposit funds based on a range of percentages determined by business earnings.
• Maintain Records: Keep comprehensive records of all contributions made to employee accounts, including time stamps and amounts. 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 a maximum of 100 employees. Employees can fund 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 simple 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 a supplementary 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 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 up employee contributions or make non-elective contributions, and ensure these are made promptly.

Personal Defined Benefit Plan

This plan is solely for owner-only 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 maximum limit set each year. While this plan is highly customizable and allows for significant contributions, there may be beginning expenditures and annual fees associated with it.

Benefits of a Personal Defined Benefit Plan

• High Contribution Limits: Allows for significantly higher contributions compared to other retirement plans, potentially reaching $two hundred seventy-five thousand dollars 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-deferred until distribution.

Setting Up a Personal Defined Benefit Plan

• Consult with a Plan Provider: Work with a bank or retirement plan provider that specializes in defined benefit plans to establish the plan.
• Create a Plan Document: Draft a scheme document that details the terms of the plan, including contribution requirements and how benefits are calculated.
• Actuarial Calculations: Have a financial analyst calculate the necessary contributions to meet the promised benefits, ensuring compliance with 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: Ensure compliance by filing IRS Form 5500 annually to report on the plan’s status.
• Permanence: To ensure compliance, a defined benefit plan must be in place for at least 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 tailorable. Employees may postpone their salary as contributions, and employers can make annual contributions. Most 401(k) plans come with significant tax planning advantages for both businesses and employees. They can include:

• Traditional 401(k)s
• Safe Harbor 401(k)s
• Automatic enrollment 401(k)s

Benefits of a 401(k) Plan

• Tax Advantages: To reduce the employee’s taxable income, contributions are made before taxes. 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 the current 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 financial emergencies.

Setting Up a 401(k) Plan

• Choose a Plan Provider: Choose a provider that offers a range of investment options, management assistance, and employee education.
• 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: Keep accurate records of contributions, earnings, and distributions.
• Distribute Plan Information: Employers sponsoring a 401(k) must distribute plan information and updates 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 Solo 401(k). It is ideal 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 non-elective contribution up to 25% of compensation or, if self-employed, an amount considering your earned income and deducting half of self-employment tax paid and contributions made by you during the year. Another benefit of individual 401(k)s is the ability to open a Roth 401(k) account, or roll over pre-tax assets.

Setting Up an Individual 401(k)

• Choose a Plan Provider: Select a financial institution or brokerage that offers Individual 401(k) plans. Look for providers with a range of investment options and reduced fees.
• Create a Plan Document: Draft 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: 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. 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 enhance 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-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 a quarter of an employee’s compensation or $$66k for this year, making it a beneficial 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: Develop 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: Yearly 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 grant employees with an ownership stake in the company, which can heighten drive and loyalty.
• Tax Benefits for the Company: Contributions to the ESOP are deductible from taxes, and the company can also receive 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 considerable retirement savings.
• Succession Planning: ESOPs can be an effective strategy for business succession, permitting 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: Perform a feasibility study to determine if an ESOP is a appropriate option for your company.
• Hire ESOP Advisors: Consult financial, legal, and ESOP advisors to help with the setup process.
• Create a Plan Document: Draft a plan document that outlines the terms of the ESOP, including how shares will be assigned and vested.
• Establish a Trust: Form 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 join a single retirement plan and achieve economies of scale. MEPs are designed to provide small businesses with a affordable and administratively efficient way to offer retirement benefits to their employees.

Benefits of an MEP

• Cost Savings: By sharing resources with other employers, businesses can lower 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 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: Small companies lacking 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 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, 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 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 benefits, 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.

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Benefits of Setting Up a Small Business Retirement Plan in Sioux Falls, SD

The particular, financial-based benefits for your Sioux Falls, SD small business retirement plan is dependent upon which plan you set up. That said, a small business retirement plan, whichever one you choose, has universal benefits. Over half of employees 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. Below are some of the main benefits for both businesses and employees of having a small business retirement plan:

Do I Need a Financial Advisor in Sioux Falls, SD to Help With My Small Business Retirement Plan?

Opening small business retirement plans is complicated. While the federal government does not currently obligate any employer to offer a retirement plan to employees, some states require employers of a certain size to have a retirement plan. Sioux Falls, SD retirement consultants that are experienced in helping business owners set up retirement plans are usually needed to not only ensure you and your employees get the most out of your plan, but that you abide by evolving tax and business laws.

As your Sioux Falls, SD retirement plan consultants for your small business, our advisers will:

• Help you elect which plan works best for you and your employees, and which financial institution should house the assets
• Assist you in setting up your plan, including adopting a written plan, 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 keeping up-to-date with relevant laws, managing the plan's assets, and distributing benefits
• Help educate your employees on your plan, its benefits, and how they can use it as a part of their ongoing financial journey

Correct Capital's Sioux Falls, SD advisors hold ourselves to the fiduciary standard, meaning we are obligated, by law and by ethics to only offer advice based on what we believe is 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 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 expected 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, and 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 integration with payroll and fiduciary management.
• 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: Using 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.

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 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 help of dedicated Sioux Falls, SD 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 Sioux Falls, SD include:

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

Small Business Retirement Plans in Sioux Falls, SD | Correct Capital

Operating a small business comes with a plethora of 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* nationwide. To set up a retirement plan for your small business, or learn what other services we offer to business owners, call Correct Capital today at 314-930-401K or contact us online.

*as of March 2024