In California, employers who have five or more employees are required to offer their own workplace retirement savings program, as of June 30th, 2022, or be automatically enrolled in a state-run plan called CalSavers. However, you might find that a customized plan is better suited for your business.
State-run plans are intended to ensure most employees have access to a workplace retirement savings program, but they can have some notable shortcomings. For example, most states only offer Roth IRAs, which means contributions are not tax-deductible. Other drawbacks can include limitations on the amount you can contribute annually and a narrow choice of investment options.
At Johanson & Yau, we understand as a small business owner you’re always looking for ways to enhance your employees' benefits while managing costs effectively. Here’s a quick rundown of why it’s important to work with a partner who can customize a plan to your needs:
- Greater flexibility with account types and investment choices.
- Tax deductibility and potential employer tax credits.
- Higher contribution limits (401(k) plans allow up to $20,500 annually for individuals; $27,000 for those 50 and older).
- Ongoing employee education and financial planning services.
- Greater customization in plan design and features, including profit-sharing.
In today’s job market, providing an attractive 401(k) plan is essential for attracting and retaining top talent. However, selecting the right retirement plan can be overwhelming and time-consuming for business owners and HR professionals. Key factors to consider include plan administration costs, workforce size and dynamics, tax implications, and potential employee turnover.
Here’s why partnering with a knowledgeable financial advisor can help you navigate these choices and find the plan that best suits your business:
Assessing Your Needs: We start by understanding your business goals, employee demographics, and financial situation. This helps us recommend the most suitable retirement plan for your specific needs.
Plan Selection: There are various types of retirement plans, each with its own set of rules and benefits. We’ll help you choose from options such as:
- 401(k) Plans: These plans allow both employer and employee contributions, offering flexibility and high contribution limits. A significant advantage of traditional 401(k) plans is their higher contribution limits compared to other retirement plans. In 2024, the maximum contribution limits saw an increase to $23,000, a $500 rise from the previous year.
- Cash Balance Plans: Cash balance plans, a type of defined benefit plan, offer a guaranteed amount at retirement. This is a particularly attractive plan for high-income business owners.
- SIMPLE IRAs: Ideal for businesses with 100 or fewer employees, SIMPLE IRAs are easy to set up and maintain. They also allow for employer and employee contributions.
- Simplified Employee Pension Individual Retirement Arrangement (SEP IRA): Simplified Employee Pension plans are great for businesses of any size, allowing for significant employer contributions.
Plan Design and Implementation: Once we’ve selected the appropriate plan, we’ll assist in designing it to meet both your and your employees’ needs. We’ll handle the paperwork and ensure the plan complies with all regulatory requirements.
Ongoing Management and Support: Setting up the plan is just the beginning. We provide continuous support, including employee education, plan administration, and regular reviews to ensure the plan aligns with your business goals.
Tax Benefits of Employer-Sponsored Retirement Plans: One of the most attractive aspects of employer-sponsored retirement plans is their tax savings. Here’s how you can benefit:
- Tax-Deductible Contributions: Contributions you make to employees' retirement accounts are typically tax-deductible, lowering your taxable income.
- Tax Credits: Small businesses may qualify for tax credits to offset the costs of starting a retirement plan. For example, the SECURE Act provides a tax credit of up to $5,000 for three years to cover startup costs.
- Deferred Taxes on Earnings: The funds in retirement accounts grow tax-deferred until they are withdrawn, potentially allowing for significant growth over time.
Maximizing Your Savings: Our team will work closely with you to ensure you take full advantage of the available tax benefits. This includes optimizing contribution levels, timing contributions to maximize tax deductions, and staying informed about any changes in tax laws that could impact your savings.
Investing in an employer-sponsored retirement plan is a strategic move that can benefit both your business and your employees.
Ready to get started? Contact us today to learn more about how we can help you set up and manage an employer-sponsored retirement plan that meets your business needs.