How local banks can help small businesses and their employees secure their retirement

Dillon Schmutz 

Faced with anxieties about retirement savings, Americans are turning to employers — including small businesses — for help securing their financial futures. With a staggering 70 percent of retirees regretting not saving more, a critical issue emerges: an estimated 56 million private-sector workers lack access to employer-sponsored retirement plans (per The Pew Charitable Trusts). This translates to a workforce larger than the combined populations of all major metropolitan areas in the United States (think New York City, Los Angeles, Chicago), potentially facing financial insecurity in their golden years.

The lack of access to employer-sponsored retirement plans presents a double challenge. It forces millions of Americans to shoulder the burden of saving for retirement on their own, often leading to lower overall retirement savings (also according to The Pew Charitable Trusts). For small businesses, the inability to offer competitive retirement plans creates a disadvantage in attracting talent.

Today’s retirement savings landscape demands innovative solutions that cater to the evolving needs of both employers and employees.

Enter SIMPLE (Savings Incentive Match Plan for Employees) and SEP (Simplified Employee Pension) IRAs. These plans offer a compelling option, especially when self-directed. With a self-directed IRA, account owners can invest in a wider range of assets beyond stocks and bonds, including real estate, precious metals and more. SIMPLE and SEP IRAs offer tax advantages, allowing employers to deduct a portion of their contributions as business expenses. Just remember, consulting with a tax advisor is crucial to ensure these benefits are maximized and all IRS regulations are followed.

By understanding the unique advantages of self-directed SIMPLE and SEP IRAs, small businesses can enhance their retirement offerings and empower employees to take greater control of their financial future.

SIMPLE IRAs: Flexibility and Matching

A SIMPLE IRA allows contributions from both employers and employees. This can be a win-win situation. Employers are required to either match a percentage of employee contributions (up to 3 percent) or contribute a non-elective 2 percent for all eligible employees. This can be a great way to attract and retain talent while helping employees save for retirement. Additionally, employees can contribute up to $16,000 in 2024, with a $3,500 catch-up contribution for those aged 50 and over. However, there are some administrative requirements, especially for businesses with more than 100 employees.

SEP IRAs: Simplicity and Control

SEP IRAs offer another option for small businesses. Unlike SIMPLE IRAs, only employers can contribute to SEP IRAs, but the contribution limit is higher. In 2024, employers can contribute up to $69,000 or 25 percent of an employee’s compensation, whichever is less. This allows employers to make significant contributions for themselves and their employees. SEP IRAs are also generally considered less administratively complex. Employers simply establish individual IRAs for eligible employees and contribute as desired. This can be ideal for businesses with a limited number of employees or those who prefer more control over contributions.

Self-Directed IRAs: Expanding Investment Horizons

Both SIMPLE and SEP IRAs can be self-directed, which gives account owners the flexibility to explore a broader range of investment possibilities, including private investments, real estate and other alternatives. This allows for potentially higher returns and greater diversification within retirement portfolios. With a self-directed IRA, account owners can invest in real estate, precious metals, private equity and more.

It’s important to understand the role of a custodian in self-directed IRAs. The Internal Revenue Code requires that a qualified custodian maintain custody of the assets in an IRA for the account owner. Unlike registered financial advisors and broker-dealers, the custodian of a self-directed IRA does not offer or sell investments or provide any investment guidance or advice. Rather, the custodian executes investment decisions solely at the account owner’s discretion.

However, this control comes with significant responsibility. The IRA owner shoulders the responsibility of ensuring that selected investments are not only suitable but also secure and legitimate. Given the prevalence of fraudulent schemes in some alternative investments, thorough research is imperative. While custodians cannot prevent fraud associated with the chosen investments themselves, they can help streamline the administrative processes involved with self-directed IRAs.

Here’s where the personal trust department at a local bank, such as Bank of Utah, can be a

valuable partner for small businesses:

Account Setup and Admin-istration: Trust departments can streamline the process of establishing self-directed IRAs for businesses. They’ll ensure the accounts comply with IRS regulations and handle ongoing administrative tasks such as recordkeeping and reporting. This frees up business owners’ time and resources.

Safeguarding Assets: Serving as custodians, trust departments safeguard IRA assets with utmost security, offering IRA accountholders peace of mind regarding the protection of their retirement savings. Again, it’s crucial to grasp the distinction between the IRA owner and the custodian, or trustee. The owner makes all investment decisions; the custodian holds the assets securely and executes transactions based on the owner’s directives.

By partnering with a qualified personal trust department, small businesses can leverage their expertise and resources to navigate the complexities of self-directed SIMPLE and SEP IRAs while focusing on what matters most — their success and the financial security of their employees.

Building a Stronger Future Together

By offering self-directed SIMPLE or SEP IRAs with the support of a local trust department, small businesses aren’t just investing in their employees’ future, they’re investing directly in the future of their company, and ultimately their own success.

Here in Utah, Bank of Utah is one of the only local banks to offer personal trust services. Established in 1952, the bank has a longstanding tradition of helping businesses and community members thrive. Its team of trust officers bring a wealth of experience to the table, as well as a deep commitment to serving clients.

Dillon Schmutz is a vice president, trust manager for Bank of Utah. A graduate of Dixie State University (now Utah Tech University), he manages the bank’s Personal Trust department, as well as the operations departments for both Personal Trust and Corporate Trust. Schmutz also oversees the corporate foreign exchange transactions for Bank of Utah.