Small Business Retirement Plans in Webster Groves, MO

Complimentary financial planning By Savology

Small Business Retirement Plans in Webster Groves, MO. Setting up a retirement plan for you and your Webster Groves, MO employees is a great way to retain talent, incentivize higher performance, and get those much-needed tax breaks. However, for most business owners, it can be hard to know where to start. What type of plan is best for your business? 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 retiring and my business will no longer be running? Correct Capital's team of Webster Groves, MO financial planners is dedicated to helping business owners and their employees reap the rewards of their retirement plans and navigate the complexity of their individual plans and benefits. Whether you already have a plan and want insight as to how it's performing or need to set up a plan, call Correct Capital today at 314-930-401K or contact us through our website.



Get Your Free Financial Plan Now

Heading into retirement? Looking for investment guidance? Transition into your golden years the smart way with help from the CERTIFIED FINANCIAL PLANNER™ professionals of Correct Capital. Get started with a free, personalized financial assessment.

Use Our Complimentary Financial Planning Tool By Savology


What Types of Retirement Plans Are Available to Small Businesses in Webster Groves, MO?

Various financial custodians provide numerous investment options and savings vehicles for small business owners and their employees to better prepare for retirement. The most prevalent ones are:


SEP-IRA

This form 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 payments, which are modifiable and can vary annually. Additionally, the contributions are eligible for tax deduction.

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: Employers are not required to contribute each year, making it perfect for businesses with fluctuating profits.}
  • Simple Administration: This plan requires minimal paperwork and does not require annual filings with the IRS except for regular tax filings.}

Setting Up a SEP-IRA

  • Select a Financial Institution: Selecting a financial institution involves choosing an institution such as a bank, brokerage firm, or credit union. Alternatively, an online financial institution.
  • Execute a Written Agreement: Communicate with eligible employees by establishing a plan document for the SEP IRA plan.
  • Make Contributions: Contributions can be made by calculating a set percentage of each employee’s compensation. Alternatively, deposit funds based on a variable percentage determined by business performance.
  • Maintain Records: Keep complete records of all contributions made to employee accounts, including dates and amounts. Additionally, ensure records are well-organized and easily accessible for audit 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 payroll deductions, and employers can also contribute. This plan is inexpensive 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 easy to establish and maintain, with no annual filing requirements for employers. This makes them suitable for small businesses with constrained 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 an additional catch-up contribution of $3,500 for those aged 50 and older.
  • Immediate Vesting: All contributions to the SIMPLE IRA are promptly 100% vested, meaning employees have full ownership of all funds in their accounts as soon as contributions are made.

Setting Up a SIMPLE IRA

  • Select a Financial Institution: Choose a banking establishment, mutual 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 details 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 to employee contributions or make non-elective contributions, and ensure these are made timely.

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 initial expenses 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 $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 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 has experience with defined benefit plans to establish the plan.
  • Create a Plan Document: Draft a scheme document that details the terms of the plan, including contribution requirements and how benefits are calculated.
  • Actuarial Calculations: Have a financial analyst calculate the necessary contributions to meet the promised benefits, per 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: Ensure compliance by filing IRS Form 5500 annually to report on the plan’s status.
  • Permanence: A defined benefit plan should be maintained for a minimum of five years. Quickly terminated plans often serve as indicators and may attract regulatory scrutiny.

401(k) Plans

401(k)s are available to private companies of any size, and are highly customizable. 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:

Benefits of a 401(k) Plan

  • Tax Advantages: To reduce the employee’s taxable income, contributions are made pre-tax. 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 2024, employees can contribute up to $twenty-three thousand dollars, 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 services, and employee education.
  • Create a Plan Document: Draft 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: Develop a meticulous record system 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 Solo 401(k), this plan is designed to offer the same benefits as a business 401(k), but 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 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: 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 $250,000, you must file IRS Form 5500 annually. Maintain precise 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 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 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 the current year, making it a beneficial 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: 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 pension scheme that invests mainly in the employer's stock. ESOPs provide employees with an ownership stake in the company, aligning their interests with the business's success, and potentially aiding in establishing the business's future leadership.

Benefits of an ESOP

  • Employee Ownership: ESOPs offer employees with an equity share in the company, which can increase drive and dedication.
  • Tax Benefits for the Company: Contributions to the ESOP are eligible for tax deduction, and the company can also gain tax benefits associated with 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, allowing owners to sell their shares to their best employees, who can gradually 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 suitable option for your company.
  • Hire ESOP Advisors: Retain financial, legal, and ESOP advisors to assist with the setup process.
  • Create a Plan Document: Prepare a plan document that defines the terms of the ESOP, including how shares will be allocated and vested.
  • Establish a Trust: Set up 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: Submit 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 cost-effective 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 reduce 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: Businesses with limited 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 offer 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 a bank 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: 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 trusted 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 Webster Groves, MO

The particular, financial-based advantages to your Webster Groves, 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 responded to a survey saying 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
  • Contributions and investment gains are not taxed until they take them out
  • Over the years small contributions grow into considerable savings
  • Ability to perform a 401(k) rollover if it's beneficial down the road

Business Benefits

  • Attract, recruit, and retain your best employees
  • Incentivize based on performance-based employer contributions
  • Deduct your taxable income from your taxable income
  • Highly customized plans are available
  • Tax credits upon initial set-up

Do I Need a Financial Advisor in Webster Groves, MO to Assist With My Small Business Retirement Plan?

Creating small business retirement plans is complicated. While the federal government does not currently require any company to offer a retirement plan to employees, certain states require employers of a certain size to have a retirement plan. Webster Groves, MO retirement consultants that have spent years helping business owners open retirement plans are usually needed to not only make sure you and your employees get the most out of your plan, but that you abide by evolving tax and business laws.

As your Webster Groves, MO retirement plan consultants for your small business, our financial planners will:

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

Correct Capital's Webster Groves, MO advisors hold ourselves to the fiduciary standard, meaning we are obligated, by law and by regulatory oversight to only work in your best interest. The only thing we sell is trust. Schedule a consultation with a member of our advisor team today.

Common Challenges and Solutions in Small Business Retirement Plans


Challenge 1: High Setup and Administrative Costs

Many small businesses are reluctant to set up retirement plans due to the perceived high costs.

Solution:

  • SIMPLE IRA and SEP IRA: These plans have 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 paperwork, compliance, and record-keeping tasks. Providers offer comprehensive administrative support, including payroll integration and fiduciary services.
  • Multiple Employer Plans (MEPs): Being part of an MEP can significantly reduce the administrative burden as the MEP sponsor handles most of the administrative duties, including compliance and reporting.

Challenge 3: Employee Participation and Engagement

Limited employee involvement can limit the effectiveness of a retirement plan.

Solution:

  • Automatic Enrollment: 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.

Issue 4: Regulatory Compliance

Handling 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 change with changing business conditions.

Solution:

  • Flexible Plans: Select retirement plans that offer flexibility in contributions. SEP IRAs, for example, allow employers to decide each year how much to contribute based on the company’s profitability, making it a suitable option for businesses with variable income.
  • Regular Plan Reviews: Conduct regular reviews of your retirement plan to ensure it continues to meet the needs of your business and employees. Update the plan as necessary to align with changes in your business environment and workforce demographics.

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

Other services we offer in Webster Groves, MO include:

Small Business Retirement Plans Webster Groves, MO | Financial Advisors | Retirement Consultants Near Webster Groves

Small Business Retirement Plans in Webster Groves, MO | Correct Capital

Owning a small business involves a mountain of moving parts and tasks to ensure things run smoothly — setting up and maintaining 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* across the United States. 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 through our website.

*as of March 2024

Are you ready to experience the Correct Capital difference?

GET STARTED

Meet our team of financial advisors.

Our Team

Services We Offer