Small Business Retirement Plans in Tallahassee, FL. Setting up a retirement plan for you and your Tallahassee, FL employees is a great way to retain talent, incentivize higher performance, and get those much-desired tax breaks. However, many business owners understandably have questions about small business retirement plans. What type of plan is best for your business? What federal regulations do I have to follow? 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 Tallahassee, FL financial planners has over 70 years of combined experience helping business owners and their employees get the most out of their retirement plans and understanding the specifics of financial law. For anything from initial setup and employee guidance to making annual adjustments, call Correct Capital today at 314-930-401K or contact us through our website.
Schedule a Meeting With an Advisor Today
Correct Capital Wealth Management's office is physically located in St. Louis, MO, but we serve clients throughout the United States in both personal financial planning and corporate retirement plans.
Schedule a 15-Minute Introductory Call
What Types of Retirement Plans Are Available to Small Businesses in Tallahassee, FL?
Various financial custodians provide a variety of retirement plans and programs for small business owners and their employees in anticipation of retirement. These include:
SEP-IRA
This kind of individual retirement account is available to sole proprietor businesses, freelancers, and businesses with very few employees. It follows the similar 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 flexible and can vary year-to-year. Additionally, the contributions are tax-deductible.
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 annually.
- Simple Administration: With this plan, there is minimal paperwork and no annual filing requirements with the IRS except for regular tax filings.
Setting Up a SEP-IRA
- Select a Financial Institution: Choose an institution to hold SEP IRA assets, like a bank, brokerage firm, or credit union. Alternatively, opt for a digital financial institution.
- Execute a Written Agreement: Communicate with eligible employees by establishing a contractual arrangement for the SEP IRA plan.
- Make Contributions: Calculate and make contributions based on a predetermined percentage of each employee’s compensation. Alternatively, contribute based on a range of percentages determined by business performance.
- Maintain Records: To maintain records, keep detailed records of all contributions made to employee accounts, including dates of contribution and sums. Additionally, ensure records are neatly arranged and easily accessible for audit purposes.
SIMPLE IRA
"SIMPLE" stands for "Savings Investment Match Plan for Employees," and these IRAs are for businesses with as many as 100 employees. Employees can fund their own accounts through salary deferrals, and employers can also contribute. This plan is low-cost 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 straightforward to establish and maintain, with no need for yearly filings for employers. This makes them perfect for small businesses with limited administrative resources.
- Employer Contributions: Employers are required to make contributions, 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 brokerage firm to hold the SIMPLE IRA assets.
- Execute a Written Agreement: Use IRS Form 5304-SIMPLE or 5305-SIMPLE to create a written agreement outlining the terms of the plan.
- Employee Notification: Notify eligible employees about the plan, including information on how to participate and the benefits provided.
- Employee Enrollment: Assist employees in setting up their accounts and making their contributions.
- Employer Contributions: Decide whether to match up employee contributions or make non-elective contributions, and ensure these are made timely.
Personal Defined Benefit Plan
This plan is 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 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 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-free 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 benefit formulas and contribution requirements.
- Actuarial Calculations: Have a financial analyst calculate the necessary contributions to meet the promised benefits, ensuring compliance with 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: File IRS Form 5500 annually to report on the plan’s status and compliance.
- Permanence: A defined benefit plan should be maintained for five years. Quickly terminated plans often serve as indicators and may attract regulatory scrutiny.
401(k) Plans
401(k)s are available to firms 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 tax-free initially. Alternatively, contributions can be made post-tax (Roth). Investments grow tax-deferred.
- Employer Matching: Many employers offer contribution matching, 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 $7,500 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: Choose a provider that offers various investment choices, administrative services, and employee learning resources.
- Create a Plan Document: Detail 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 safeguard them for employees.
- 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)
Also known as a Individual 401(k), this plan is designed to offer the same benefits as a traditional 401(k), but 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. Another advantage of individual 401(k)s is that you can opt 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. Seek out providers with multiple investment options and lower fees.
- Create a Plan Document: Draft 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 filling out an application and providing necessary documentation.
- Make Contributions: Set your contribution amounts for the year and make regular contributions. Ensure you stay within the IRS limits for total contributions.
- Compliance and Reporting: If your plan assets exceed $250,000, you must file IRS Form 5500 annually. 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 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 boost 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 versatile option for businesses with changing earnings.
- Tax Advantages: Contributions are tax-deductible for the business, reducing taxable income. Additionally, the funds grow without immediate tax, which can benefit employees' long-term savings.
- Employee Motivation and Retention: Linking contributions to company profits can increase 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 $66,000 for this year, making it a advantageous option for employee benefits.
Setting Up a Profit Sharing Plan
- Choose a Plan Provider: Select a investment firm or retirement plan provider to administer the plan.
- Create a Plan Document: Prepare a plan document outlining the profit-sharing formula, eligibility requirements, and vesting schedule.
- Communicate with Employees: Advise employees about the plan, how it works, and the benefits they can expect.
- Determine Contributions: Annually decide the amount to contribute based on company profits and the predetermined formula.
- File Necessary Forms: File IRS Form 5500 every year to report the plan’s status and compliance.
Employee Stock Ownership Plan (ESOPs)
An Employee Stock Ownership Plan (ESOP) is a retirement plan that invests primarily in the employer's stock. ESOPs give employees ownership interest in the company, aligning their interests with the business's success, and potentially helping set up the business's next generation of leadership.
An Employee Stock Ownership Plan (ESOP) is a retirement plan that primarily invests in the employer's stock. ESOPs provide employees ownership interest in the company, aligning their interests with the business's success, and potentially helping establish the business's next generation of leadership.
Benefits of an ESOP
- Employee Ownership: ESOPs provide employees with an partial ownership in the company, which can improve motivation and dedication.
- Tax Benefits for the Company: Contributions to the ESOP are deductible from taxes, and the company can also obtain 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 significant 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 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: Hire financial, legal, and ESOP advisors to help with 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: Brief employees about the ESOP, how it works, and the perks they can expect.
- Compliance and Reporting: File 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 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 advantageous option for small businesses looking to save on expenses.
- Administrative Efficiency: MEPs streamline 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, helping 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, 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 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 completing 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, filing necessary forms, 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.
Benefits of Setting Up a Small Business Retirement Plan in Tallahassee, FL
The particular, financial-based advantages to your Tallahassee, FL small business retirement plan will largely be based on the specific plan you choose. That said, 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 stating it is a "very important" factor in job satisfaction, while employers also get tax breaks and can better attract and motivate employees. Companies and employees will both enjoy:
Employee Benefits
- Improved financial security in retirement
- Tax deductions
- Contributions can be easily made through payroll deductions
- They do not pay taxes on money they put in or how the money grew until they take them out
- As interest accrues, small savings grow into considerable sums of money
- Ability to conduct a 401(k) rollover if it's beneficial down the road
Business Benefits
- Attract, recruit, and retain talent
- Promote great work ethic
- Deduct your taxable income from your taxable income
- Highly customized plans are available
- Tax credits that can help reduce startup costs
Do I Need a Financial Advisor in Tallahassee, FL to Assist With My Small Business Retirement Plan?
Opening small business retirement plans is complicated. While the federal government does not currently require any company to offer a retirement plan to employees, some states require employers of a certain size to offer access to a retirement plan. Tallahassee, FL retirement consultants that have spent years helping business owners set up retirement plans are usually needed to not only make sure the plan is right for you, but that you follow ever-changing tax and business laws.
As your Tallahassee, FL retirement plan consultants for your small business, our team will:
- Help you decide the best plan for you, and the right custodian to hold plan 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 implementing a record keeping system
- Help you operate your plan by staying compliant with relevant laws, managing the plan's assets, and distributing benefits
- Help educate your employees on your plan, its benefits, and how they can use it as a component to their ongoing financial health
Correct Capital's Tallahassee, FL financial planners are fiduciary advisors, 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
Challenge 1: High Setup and Administrative Costs
Many small businesses are unwilling to set up retirement plans due to the perceived high costs.
Solution:
- SIMPLE IRA and SEP IRA: These plans have reduced setup and administrative costs compared to traditional 401(k) plans.
- Tax Credits: The SECURE Act 2.0 offers tax credits for small businesses to offset the costs of setting up retirement plans. Businesses can receive a credit of up to $5,000 annually for three years to cover startup costs, and an additional credit for automatic enrollment plans.
Challenge 2: Administrative Complexity
The challenges of maintaining a retirement plan can be daunting for small business owners.
Solution:
- Outsource Administration: Many plan providers offer administrative services that can handle the majority of the documentation, compliance, and record-keeping tasks. Providers offer comprehensive administrative support, including payroll integration 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
Low employee participation 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 raise 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.
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. We can assist with plan setup, annual filings, and ongoing management.
- Use of Technology: Many retirement plan providers offer online platforms that help manage compliance by automating reporting, tracking contributions, and ensuring that all regulatory requirements are met.
Challenge 5: Flexibility and Adaptability
Business owners need plans that can adapt to changing business conditions.
Solution:
- Flexible Plans: 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 Tallahassee, FL 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 Tallahassee, FL include:
- 401(k) Audit
- High-Net-Worth Wealth Management
- Retirement Planner
- Financial Planning
- Retirement Plan Consultants
- Fiduciary Financial Advisor
Small Business Retirement Plans in Tallahassee, FL | Correct Capital
Operating a small business comes with countless daily, monthly, and annual tasks to ensure things run smoothly — navigating the complexities of a small business retirement plan shouldn't be one of them. Correct Capital currently manages over 37 plans for a variety of types of businesses, and represents over $212 million in total plan assets* nationwide. 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