Small Business Retirement Plans in St. Louis, MO

Small Business Retirement Plans in St. Louis, MO. Offering a retirement plan to your St. Louis, MO employees is a great way to retain talent, incentivize higher performance, and get those much-desired tax breaks. While the benefits may be obvious, the difficulties of establishing and maintaining small business retirement plans are not. What benefits do different kinds of plans provide? What federal regulations do I have to follow? What do I do when a new plan seems like a better option, or if I'm closing my business? Correct Capital's team of St. Louis, MO financial planners is dedicated to helping business owners and their employees get the most out of their retirement plans and understanding the specifics of their individual plans and benefits. 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 St. Louis, MO?

The federal government and various financial custodians offer a wide array of savings plans and savings vehicles for small business owners and their employees to better prepare for retirement. Among the most common are:

SEP-IRA

This variant of individual retirement account is available to self-employed 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 without taxes. Employers can deduct contributions they make on behalf of their employees. Only employers make payments, which are modifiable 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: For businesses with changing profits, this plan is perfect as employers are not obligated to contribute every year.
• Simple Administration: This plan requires minimal paperwork and does not require annual filings with the IRS beyond regular tax filings.

Setting Up a SEP-IRA

• Select a Financial Institution: digital financial institution.
• Execute a Written Agreement: Notify eligible employees by establishing a plan document for the SEP IRA plan.
• Make Contributions: Contributions can be made by calculating an established percentage of each employee’s compensation. Alternatively, deposit funds based on a range of percentages determined by business profits.
• Maintain Records: Keep detailed records of all contributions made to employee accounts, including dates and sums. Additionally, ensure records are neatly arranged 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 inexpensive 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 easy to establish and maintain, with no annual filing requirements for employers. This makes them suitable for small businesses with restricted 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 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 investment brokerage to hold the SIMPLE IRA assets.
• Execute a Written Agreement: Use IRS Form 5304-SIMPLE or 5305-SIMPLE to create a written agreement outlining the terms of the plan.
• Employee Notification: Notify eligible employees about the plan, including information on how to participate and the benefits provided.
• Employee Enrollment: Assist employees in establishing their accounts and making their contributions.
• Employer Contributions: Decide whether to match employee contributions or make non-elective contributions, and ensure these are made promptly.

Personal Defined Benefit Plan

This plan is solely 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 startup costs 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 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 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 benefit formulas and contribution requirements.
• Actuarial Calculations: Have an actuary 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: A defined benefit plan needs to be in place for at least five years. Plans established that are quickly terminated are often indicators and open to regulatory scrutiny.

401(k) Plans

401(k)s are available to private companies of any size, and are highly customizable. Employees may defer their salary as contributions, and employers can make contributions every year. Most 401(k) plans come with significant tax planning advantages for both businesses and employees. They can include:

• 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 matching contributions, which can significantly boost an employee's retirement savings.
• Higher Contribution Limits: For this year, employees can contribute up to $$23k, 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 a range of investment options, administrative support, and employee learning resources.
• Create a Plan Document: Prepare 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: Maintain precise 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 Solo 401(k), is designed to provide the same benefits as a company 401(k), but specifically for individuals who are sole proprietors, or whose only employee is their spouse. Each year, you can contribute up to the annual 401(k) limit, and the employer may make a additional contribution up to one-fourth 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: Pick a financial institution or brokerage that offers Individual 401(k) plans. Look for providers with various investment options and minimal fees.
• Create a Plan Document: Create the terms of your plan, including contribution limits, investment options, and loan provisions.
• Open an Account: Establish your Individual 401(k) account with the chosen provider. This typically involves completing 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 $$250k, you must file IRS Form 5500 annually. Ensure detailed records of all contributions and transactions.

Profit Sharing Plans

A Profit Sharing Plan is a type of retirement plan where employers can make optional 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 decide each year how much to contribute based on the company's profitability. This makes it an versatile option for businesses with fluctuating 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 one-fourth of an employee’s compensation or $$66k for 2024, making it a beneficial option for employee benefits.

Setting Up a Profit Sharing Plan

• Choose a Plan Provider: Pick a financial institution 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: Notify 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 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 ownership interest in the company, matching their interests with the business's success, and potentially preparing the business's upcoming generation of leadership.

Benefits of an ESOP

• Employee Ownership: ESOPs offer employees with an partial ownership in the company, which can enhance 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 benefit from the growth in the value of the company’s stock, granting potentially considerable retirement savings.
• Succession Planning: ESOPs can be an effective tool for business succession, permitting owners to sell their shares to high-performing employees, who can slowly take the lead as previous owners transition into retirement.

Setting Up an ESOP

• Feasibility Study: Conduct a feasibility study to determine if an ESOP is a appropriate option for your company.
• Hire ESOP Advisors: Consult financial, legal, and ESOP advisors to help with the setup process.
• Create a Plan Document: Write a plan document that defines the terms of the ESOP, including how shares will be allocated and vested.
• Establish a Trust: Establish an ESOP trust to hold the company stock on behalf of employees.
• Communicate with Employees: Update 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 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 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 cut administrative costs and fees associated with maintaining a retirement plan. This cost-sharing makes MEPs an appealing 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: Small businesses that might not have the resources to offer a retirement plan on their own can provide competitive retirement benefits through an MEP, helping to attract and retain talented employees and create the business access to a competitive advantage they wouldn't be able to have on their own.
• Fiduciary Relief: The MEP sponsor typically assumes most of the fiduciary responsibilities, 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 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: 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, submitting required documents, and managing plan assets.

There are benefits and drawbacks 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 incentives, 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 St. Louis, MO

The specific, financial-based benefits for your St. Louis, MO small business retirement plan is dependent upon which 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 say that a retirement plan is a "very important" factor in job satisfaction, 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 St. Louis, MO to Assist With My Small Business Retirement Plan?

Creating small business retirement plans is far different from setting up a personal savings plan at your local St. Louis, MO bank. While the federal government does not currently require any business to offer a retirement plan to employees, some states require businesses of a certain size to have a retirement plan. St. Louis, MO retirement consultants that have spent years helping business owners establish 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 St. Louis, MO retirement plan consultants for your small business, our team will:

• Help you decide which plan works best for you and your employees, and the right custodian to hold plan 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 how specific of the plan apply to their retirement, 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 component to their ongoing financial success

Correct Capital's St. Louis, MO advisors hold ourselves to the fiduciary standard, meaning we are legally and ethically bound to only work in your best interest. We work for you, and not our own firm. 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 hesitate 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, with 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 documentation, compliance, and record-keeping tasks. Providers offer comprehensive administrative support, including integration with payroll and fiduciary management.
• Multiple Employer Plans (MEPs): Enrolling in 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 increase participation and savings rates.
• Employee Education: Providing regular education and communication about the benefits of the retirement plan can help increase employee engagement. Host 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. Correct Capital can assist with plan setup, annual filings, and ongoing management.
• Use of Technology: Many retirement plan providers offer online platforms that help manage compliance by automating reporting, tracking contributions, and ensuring that all regulatory requirements are met.

Challenge 5: Flexibility and Adaptability

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

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

Other services we offer in St. Louis, MO include:

• Financial Planning
• Retirement Plan Consultants
• Succession Planning
• Fiduciary Financial Advisor
• Company 401(k) Plans
• ESOP Advisor
• Self-Employed Retirement Plans
• 401(k) For Small Business
• Tax Planning

Small Business Retirement Plans in St. Louis, MO | Correct Capital

Operating a small business involves countless 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 in both small and large companies, and represents over $212 million in total plan assets* nationwide. To set up a retirement plan for your small business, or learn what we can do for business owners, speak to a financial advisor at Correct Capital today at 314-930-401K or contact us online.

*as of March 2024