Choose The Best Small Business Retirement Plan
Finding the best small business retirement plan for your specific situation can mean the difference between thousands of dollars in tax savings and thousands of dollars quietly walking out the door. I brought retirement plan specialist Bill Black back on the Profitable Home Services Podcast to dig into something I’ve been watching quietly unfold across the country, and it caught one of my California customers completely off guard when they learned they were two years past a state enrollment deadline.
Bill breaks down what state-mandated plans actually are, why payroll company plans often leave money on the table, and how a custom-designed plan can put more cash back in your pocket. Too many home service business owners think they’re covered because they already have a retirement plan, but the type of plan you have matters more than most people realize. Don’t let Sneaky Leaky get in through your retirement plan and steal what should be yours.
What You’ll Learn…
- Why having a retirement plan doesn’t mean you have the best small business retirement plan for your goals
- How state-mandated plans are spreading across the country and what that means for your business
- The profit leak is hiding inside high fund fees that most owners never think to question
- Why a 401(k) from a payroll company and a custom-designed 401(k) are not the same thing
- How the best small business retirement plan can legally put more money in your pocket at tax time
- What tax credits are available for owners who set up a new retirement plan, and how much they’re worth
- Why even one employee living in a different state could trigger plan requirements you never knew existed
Key Moments…
[0:45] What a State Mandated Retirement Plan Actually Is
[6:11] Why Even One Employee Triggers Retirement Plan Requirements
[11:09] How a Custom Plan Design Can Be The Best Small Business Retirement Plan
[16:14] The 401(k) Myth That Costs Home Service Business Owners Real Money
[23:01] How To Pick the Right Plan for Your Specific Business
[28:10] Tax Credits Worth Up to $5,000 for Creating a New Retirement Plan
[34:19] What Happens When Your Remote Employee Lives in Another State
[39:30] Getting a Second Opinion to Find the Best Small Business Retirement Plan
What a State Mandated Retirement Plan Actually Is
State-mandated retirement plans are sweeping the country faster than most small business owners realize, and right now, there are about 14 states with active mandatory plans and more on the way. If your state is on that list, you may already be required to withhold 5% from every employee’s paycheck and send it straight to the state, whether you want to or not. The employer gets no tax deduction, no business benefit, and the employee gets no immediate tax break on what’s withheld. When you’re running a home service business and trying to find the best small business retirement plan for your situation, starting with a state plan is a bit like being handed a uniform that was never made to fit you. Knowing what these plans actually are is the first step toward making a smarter decision for your business.
Why Even One Employee Triggers Retirement Plan Requirements
One of the things that surprised me most when Bill explained this is that some states require you to participate if you have as little as one employee. That means a small home service company with just one person on payroll could already be subject to state withholding requirements, bookkeeping obligations, and remittance deadlines they never knew existed. And if you have a remote employee living in a different state than your business address, that state’s rules apply to you too, even if you’ve never set foot there. Finding the best small business retirement plan for your company starts with knowing exactly which states your employees are working from, not just where your business is located. Getting this wrong can mean fines, letters from state agencies, and a lot of unnecessary stress.
How a Custom Plan Design Can Be The Best Small Business Retirement Plan
When money from your business goes into a well-designed retirement plan, it becomes tax-deductible, which means instead of walking away with 60 cents on the dollar after taxes, you could be putting the full 100 cents on the dollar into the plan. The earnings inside that plan grow without being taxed along the way, and the funds are protected from judgment creditors if your business ever faces a lawsuit. Bill & I have done enough plan rescues together over the years to see firsthand how a custom-designed plan changes the cash flow picture for owners who had been running on off-the-shelf setups. We’ve seen plans that were quietly costing employers hundreds or even thousands of dollars every year just because of the way they were originally structured, and once we fixed them, the difference showed up immediately in the bottom line. A plan built around your specific goals is not a luxury; it’s a profit protection strategy.
The 401(k) Myth That Costs Home Service Business Owners Real Money
A lot of business owners assume that a 401(k) is a 401(k), and it doesn’t matter where it comes from as long as it checks the box. Bill put it plainly: a 401(k) is just a section of the Internal Revenue Code, and how that plan is designed is what actually determines whether it works for you or against you. An off-the-shelf plan from a payroll company or an insurance company is built to fit everyone, which means it fits no one in particular. A custom-designed plan looks at your goals, the ages and tenure of your employees, and the deduction amount you need, then structures things so the employer gets the lion’s share of the benefit.
How To Pick the Right Plan for Your Specific Business
Bill’s advice for home service business owners in the five to ten million dollar range is straightforward: start with an analysis before you decide anything. That means getting a census of your employees, including names, dates of birth, dates of hire, and estimated W2s, then building a side-by-side comparison of what the state plan offers versus what a custom plan could do for you. The goal of a well-designed employer benefit plan is to make sure the owner, the person who takes on all the risk and gets paid last, ends up with 75 to 85 or even 90 cents of every dollar going into the plan. Employees still receive a benefit, but through a vesting schedule, the contributions the employer makes don’t fully belong to the employee until they’ve put in enough years. This is how you design a plan that rewards your business rather than just checking a government compliance box.
Tax Credits Worth Up to $5,000 for Creating a New Retirement Plan
If you haven’t had a retirement plan in place for the last three years and you create one now, the IRS will give you a tax credit just for doing it, and that credit can be worth up to $5,000. On top of that, you can get a credit for every dollar you contribute to an employee’s account, up to $1,000 per employee for those earning less than $150,000 a year. These credits run for five years and step down gradually after year two. Tax credits are better than deductions because they reduce your tax bill dollar for dollar, and in this case, the best small business retirement plan you set up actually pays you back for setting it up. That’s a profit leak being plugged before it ever starts.
What Happens When Your Remote Employee Lives in Another State
This one catches a lot of owners off guard, and it nearly caught one of my Idaho customers, too. He had one employee who had been living in California, and the moment Bill mentioned that state plan requirements follow the employee, not the business address, I picked up the phone. Fortunately, the employee had already moved out of California, so my customer dodged the requirement entirely. But if that employee had still been there, a business based in Idaho would have been required to participate in CalSavers because of one person on the team living across state lines. With more home service businesses hiring remote workers and office staff who work from home, this is a compliance detail that can sneak up on you fast, and Sneaky Leaky loves a detail nobody is watching.
Getting a Second Opinion to Ensure You Have the Best Small Business Retirement Plan
If you already have a retirement plan in place, the question worth asking is when was the last time anyone actually looked at it. Business conditions change, your team grows, your goals shift, and a plan that made sense five or six years ago may not be serving you as well today. Bill offers a no-charge side-by-side analysis that shows you exactly what your current plan is delivering versus what a redesigned or alternative plan could do for your bottom line. Even if the analysis confirms your plan is solid, you’ll have peace of mind knowing it. And if it turns out there’s a profit leak sitting quietly inside your plan, that’s exactly the kind of thing we can fix so you’re keeping more of what you’re working so hard to earn.
Discussions in this show should not be construed as specific recommendations or investment advice. Always consult with your investment professional before making important investment decisions.
Securities offered through Cambridge Investment Research, Inc., a registered Broker/Dealer, Member FINRA/SIPC. PensionSpecialist.net and Cambridge are not affiliated.
About Bill:
Bill Black has been in the pension administration business for over 40 years and is responsible for the marketing efforts of the firm, assisting producers nationally with the sale of qualified plans.
Bill has a B.A. from Rollins College in Business Administration and Economics, is a CLU, ChFC, Life and Qualifying member of the Million Dollar Round Table (MDRT), and a 20-time Court of the Table and 20-time Top of the Table qualifier. Bill brings that unique and necessary combination to the marketing effort. He is comfortable with the explanation of complex ideas and able to put them into easily understood concepts, with the ability to sell.
Having spoken nationally and internationally on the topics of qualified plans, Bill is a much sought-after speaker. He is certified to teach continuing education to CPA’s and insurance professionals. Additionally, he has had numerous articles published in industry journals and has been featured on radio programs that address financial planning matters.
Licensed in 43 states, we are truly a national practice. Bill has marketed and administered plans in virtually every state in the union.
Connect With Bill Black:
Visit Bill’s Website
Connect with Bill on LinkedIn
🔎 Get Bill’s map of the states that require a state-mandated retirement plan https://www.aarp.org/pri/initiatives/state-retirement-resource-center/savings-plans/
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