Small Business Retirement Plans in Winston-Salem, NC

Small Business Retirement Plans in Winston-Salem, NC. Setting up a retirement plan for you and your Winston-Salem, NC employees offers a variety of benefits, including tax reductions and a great way to attract and retain talent. However, for most business owners, it can be hard to know where to start. What benefits do different kinds of plans provide? What are the different laws I'll 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 Winston-Salem, NC financial planners is committed to helping business owners and their employees get the most out of their retirement plans and understanding the complexity of federal regulations. 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.

What Types of Retirement Plans Are Available to Small Businesses in Winston-Salem, NC?

The federal government provides a variety of savings plans and programs for small business owners and their employees in preparation for retirement. Among the most common are:

SEP-IRA

This kind of individual retirement account is available to single-owner 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 flexible and can vary year-to-year. Additionally, the contributions are eligible for tax deduction.

Benefits of a SEP-IRA

• High Contribution Limits: For 2024, employers are allowed to contribute up to 25% of each employee’s compensation, with a cap of $69,000.
• Flexibility: Employers are not required to contribute annually, making it perfect for businesses with changing profits.
• Simple Administration: The 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: To establish the SEP IRA plan, create a written agreement and advise eligible employees.
• Make Contributions: Based on business performance, contributions can be made by an established percentage of each employee’s compensation or make payments based on a variable percentage.
• Maintain Records: To maintain records, keep complete records of all contributions made to employee accounts, including dates of contribution and amounts. Additionally, ensure records are 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 fund their own accounts through deductions from their salaries, and employers can also make contributions. This plan is low-cost as it's mainly funded by employees, and their contributions can be tax deductible.

Benefits of a SIMPLE IRA

• Ease of Setup and Administration: SIMPLE IRAs are straightforward 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 an extra catch-up contribution of $3,500 for those aged 50 and older.
• Immediate Vesting: All contributions to the SIMPLE IRA are immediately 100% vested, meaning employees have full ownership of all funds in their accounts as soon as contributions are made.

Setting Up a SIMPLE IRA

• Select a Financial Institution: Choose a bank, 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 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 in a timely manner.

Personal Defined Benefit Plan

This plan is specifically for owner-only 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 yearly charges associated with it.

Benefits of a Personal Defined Benefit Plan

• High Contribution Limits: Allows for significantly higher contributions compared to other retirement plans, potentially reaching $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 plans.
• 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 an investment firm 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 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: 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: 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 red flags and open to regulatory scrutiny.

401(k) Plans

401(k)s are available to corporations 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 tax-deferred.
• Employer Matching: Many employers offer contribution matching, 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 unexpected expenses.

Setting Up a 401(k) Plan

• Choose a Plan Provider: Select a provider that offers various investment choices, administrative services, and staff training.
• Create a Plan Document: Outline the terms of the plan, including eligibility, contributions, and vesting schedules.
• Set Up a Trust: Ensure plan assets are held in trust to safeguard 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 modifications 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 company 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 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: Choose a financial institution or brokerage that offers Individual 401(k) plans. Look for providers with a range of investment options and lower fees.
• Create a Plan Document: Create 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: 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 $$250k, you must file IRS Form 5500 annually. Keep accurate records of all contributions and transactions.

Profit Sharing Plans

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

Benefits of a Profit Sharing Plan

• Flexibility in Contributions: Employers can determine 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-free until withdrawal, 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 one-fourth of an employee’s compensation or $66,000 for the current year, making it a advantageous 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: Write a plan document outlining the profit-sharing formula, eligibility requirements, and vesting schedule.
• Communicate with Employees: Educate 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 invests primarily in the employer's stock. ESOPs grant employees a stake in the company, matching their interests with the business's success, and potentially helping set up the business's future generation of leadership.

Benefits of an ESOP

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

Setting Up an ESOP

• Feasibility Study: Execute a feasibility study to determine if an ESOP is a feasible option for your company.
• Hire ESOP Advisors: Hire financial, legal, and ESOP advisors to help with the setup process.
• Create a Plan Document: Compose a plan document that details the terms of the ESOP, including how shares will be distributed 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 benefits 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 participate in 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 combining resources with other employers, businesses can decrease administrative costs and fees associated with maintaining a retirement plan. This cost-sharing makes MEPs an attractive option for small businesses looking to save on expenses.
• Administrative Efficiency: MEPs simplify 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: Businesses with limited resources to provide 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, decreasing 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: 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 advantages, fees, required minimum distributions, contribution limits, and more. A reputed 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 Winston-Salem, NC

The particular, financial-based benefits for your Winston-Salem, NC small business retirement plan is dependent upon which plan you set up. However, there are many general benefits of setting up a small business retirement plan for both businesses and workers. 60% of employees say that a retirement plan is a "very important" factor in how good they feel at their present employment, while employers also get tax breaks and can better attract and motivate employees. Below are some of the main benefits for both businesses and employees of setting up a small business retirement plan:

Do I Need a Financial Advisor in Winston-Salem, NC to Help With My Small Business Retirement Plan?

Setting up small business retirement plans is complicated. While the federal government does not currently obligate any business to offer retirement savings options to workers, some states require employers of a certain size to have a retirement plan. Winston-Salem, NC retirement consultants that are experienced in helping business owners create retirement plans are usually needed to not only ensure the plan is right for you, but that you follow evolving tax and business laws.

As your Winston-Salem, NC retirement plan consultants for your small business, our team will:

• Help you elect the "right" plan for you, and which financial institution should house the assets
• Assist you in establishing your plan, including adopting a written plan, 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 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 it can serve as a component to their ongoing financial journey

Correct Capital's Winston-Salem, NC advisors hold ourselves to the fiduciary standard, meaning we are obligated, by law and by regulatory oversight to do what's best for you and your employees. As an independent firm, we have the freedom and flexibility to tailor our offerings to best suit the goals of our clients. Schedule a consultation with a member of our advisor team today.

Common Challenges and Solutions in Small Business Retirement Plans

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Challenge 1: High Setup and Administrative Costs

Many small businesses are unwilling to set up retirement plans due to the assumed high costs.

Solution:

• SIMPLE IRA and SEP IRA: These plans have minimal setup and administrative costs compared to traditional 401(k) plans.
• Tax Credits: The SECURE Act 2.0 offers tax credits for small businesses to offset the costs of setting up retirement plans. Businesses can receive a credit of up to $5,000 annually for three years to cover startup costs, with 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 administrative tasks, compliance, and record-keeping tasks. Providers offer comprehensive administrative support, including payroll integration and fiduciary responsibilities.
• Multiple Employer Plans (MEPs): Participating 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: 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 boost participation and savings rates.
• Employee Education: Providing regular education and communication about the benefits of the retirement plan can help increase employee engagement. Offer 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: Opt for 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 support of dedicated Winston-Salem, NC 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 Winston-Salem, NC include:

• High-Net-Worth Wealth Management
• Retirement Planner
• Financial Planning
• Retirement Plan Consultants
• Fiduciary Financial Advisor

Small Business Retirement Plans in Winston-Salem, NC | Correct Capital

Operating a small business involves a mountain of daily, monthly, and annual tasks to ensure things run smoothly — setting up and maintaining a small business retirement plan doesn't have to be one of them. Correct Capital currently manages over 37 plans in both small and large companies, and represents over $212 million in total plan assets* throughout the country. 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