If you are just starting a 401(k) at your company, you may be wondering about vesting. How should you decide what type of vesting schedule to establish? Does it really matter? Although some people might not think so, we think it matters, and the schedule you settle on can affect many aspects of your business. In this post, we explain how your choices matter to your business today, and in the future.

What Is Vesting?

Even if you never heard of vesting as it relates to a 401(k), you likely heard of a vested interest. For example, if you are a worker at a company, you may have a vested interest in whether your company wins a particular contract, because that could mean continued work and more money for you. It’s similar to investment, meaning you have put your time, effort, or money into a situation that you hope pays off.

Vesting, as it relates to 401(k)s, refers to an employee’s entitlement to the funds in their 401(k). However, vesting only applies to company match funds; employees’ own contributions are always 100% theirs. The ones you make on their behalf become their property only under conditions that you as the employer are allowed to set.

Employer Contributions to 401(k)s

While employer contributions to 401(k)s are definitely looked upon favorably, they are by no means required. This means you can sponsor a 401(k) plan at your company for your employees but never make any contributions on their behalf. This isn’t quite as bad as it sounds. Sponsoring a 401(k) plan for your employees means they have access to a 401(k) that they otherwise would not have. While anyone can open an IRA as a means to start saving for retirement, this vehicle isn’t nearly as good as a 401(k), even a 401(k) with no company match. That’s because the maximum a worker can contribute to an IRA is $7,000, while the maximum they can contribute to a 401(k) is $23,000 (in 2024). This is a huge difference. A 401(k) can net an investor hundreds of thousands or even millions more during their lifetime than an IRA can.

Unfortunately, the only way a worker in the U.S. can get access to a 401(k) is through an employer. With almost all businesses in the U.S. being small businesses, problems arise when these companies can’t (or won’t) offer employees 401(k) plans. And the smaller the business, the more likely a company is not to offer a 401(k). Historically, the reason has been that starting a 401(k) is too expensive, and keeping it running is too laborious. 401GO’s mission is to provide small businesses with the opportunity to offer a 401(k) plan to employees at a minimal cost and with setup that takes only minutes instead of weeks.

The U.S. government has taken notice of the fact that many small businesses don’t offer 401(k)s, and in many states, providing access and automatic contributions to an IRA is mandatory. This is very nice, but you already know now what the limits of an IRA are.

Thus, the bottom line here is that you aren’t required to offer a match when you start a 401(k) at your company, and if you don’t, you will still be offering your employees a valuable benefit. But it won’t be as valuable as businesses that do offer a match.

Matching Contributions

When employers offer a match for employees’ 401(k) contributions, it’s often 50% up to 6%. That being said, you are in no way tied to this formula and can match any percentage you choose. It’s probably best not to make it too complicated, however, because you want employees to easily understand the benefit they get by working at your company.

For example, an employee earning $100,000 and putting 6% of their salary in their 401(k) at a company with a 50% match actually gets $103,000. If they contribute less than 6%, they are, in effect, foregoing free money from their employer. If that same employee works for a company that does not offer an employer match, they are effectively getting less compensation each year.

Vesting Schedules

For the most part, both employees and employers know how valuable an employer match is, and that’s why some employers create a vesting schedule. These employers use the vesting schedule as leverage to keep employees tethered to the company longer and discourage them from leaving to take a better offer.

There are two main types of vesting: cliff and gradual. With cliff vesting, the matching funds become employee property all at once on a specified date in the future, while with gradual vesting, the employee gets a larger percentage at certain preset intervals.

Commonly, vesting schedules are between three and five years. If we use the same example above of the employee who earns $100,000 and puts 6% of their salary in their 401(k) and gets a 50% employer match, in three years the employer will have contributed $9,000 to the employee’s account, and in five years $15,000.

Some employers choose to set a vesting schedule so that if the employee leaves the company before a certain time period, they forfeit the employer matching funds.

Vesting: Yea or Nay?

We titled this blog “How to Establish a Vesting Schedule for Your Company’s 401(k),” but it’s less about the percentages and more about what you should consider when you are thinking about a vesting schedule.

Simply having a vesting schedule, while not uncommon, presents the potential to be viewed by employees as adversarial. It’s a way to encourage them into staying at your company when they might otherwise choose to leave, and it can lead to hard feelings. You can find all kinds of statistics online about how many companies have vesting schedules and how many don’t, but we can say it’s roughly about half and half.

Factors you may want to consider before deciding whether to establish a vesting schedule include:

•     Whether your competitors have vesting schedules
•     How long your employees typically stay at your company
•     Whether your company culture is generally friendly and welcoming, or more strict and authoritarian

If none of your competitors has a vesting schedule and you do, it could make you look cheap, apprehensive or mistrustful. If you have high employee turnover, a vesting schedule could look like a way to make it easier to mistreat employees. If you run your business like it’s a family and you introduce a vesting schedule, you run the risk of alienating the loyal employees you already have. On the other hand, if you make it clear that the employee-employer relationship is strictly business, you may have fewer issues with introducing a vesting schedule.

Whatever you choose, know that if it doesn’t seem to be working out for you, you can try changing it down the road to see if things improve. Just make sure to give each way enough time to see how it works for your company.

The post How to Establish a Vesting Schedule for Your Company’s 401(k) appeared first on Fast and Affordable 401k for growing businesses.

The New Limits

Employees may not put more than the allowed amount into their 401(k) in any given year. In 2023, the elective deferral limit for employees was $22,500; this year, that limit is rising $500 to $23,000.

Many employers offer a match of 50% up to 6% of employee contributions, although these percentages vary with each plan. If you offer the same match at your business and your employee earns $100,000 and contributes 6% ($6,000), you contribute $3,000 for a total of $9,000. These numbers are well below the new IRS limits, but employees have a number of options for reaching these higher maximums for saving.

Download a PDF version of the 2024 Retirement Plan Limits chart.

How to Save More

Many employees may elect to save more than 6% of their income. The first 6% is important because of the company match. Employees unable or unwilling to save at least 6% are essentially missing out on free money. If we use the employee earning $100K as an example, and that employee earmarks 3% deferral rather than 6%, they are missing out on a full $1,500 from the company.

Some employees legitimately can’t afford to contribute the full 6% due to debts, living expenses or other obligations, but many simply don’t realize they can do more to help themselves. In fact, according to a CNBC Money Survey, nearly half of people who contribute to a 401(k) say that they do not contribute the maximum because they can’t afford to.

Those who can afford it may contribute 10% or more — as long as they don’t exceed the maximum of $23,000. To be clear, this maximum is the employee maximum. The employer match doesn’t count toward this number. The government sets a separate maximum for combined employee + employer contributions. In 2023, it was $61,000; this year, it’s $69,000. 

Because different companies may contribute different matches, the important part of this equation is not so much the percentage, but the total contribution.

Highly Compensated Employees

Employers must keep in mind, however, that although employees are allowed to contribute more than 6%, care must be taken to not violate the laws with respect to highly compensated employees. Part of the reason the IRS has rules governing how much employees can save is because the government is trying to limit the advantage that highly compensated employees would have if everyone was allowed to contribute however much they wanted.

Therefore, you may have to limit some of your employees’ contributions if they are among your more highly compensated workers. IRS rules define highly compensated employees as those who own more than 5% of the company or who earn over a certain dollar amount. Last year, the limit to qualify as a highly compensated employee was $150,000; this year, it is $155,000. 

It gets complicated, however, with rules regarding which employees are and are not in the top 20% of earners, and how much the average earner is contributing. This is why some companies opt to open a Safe Harbor 401(k), which exempts them from compliance audits that identify, among other things, whether HCEs are getting an advantage. In exchange for this get-out-of-jail-free card, they are obliged to adhere to other rules such as making mandatory matching contributions.

Catchup Contributions

Whether you offer (or plan to offer) a traditional 401(k) or a Safe Harbor 401(k) at your company, employees 50 and older are allowed to make catchup contributions, so called because they allow workers who are closer to retirement but may have not saved an adequate amount to “catch up.” The limits for 2023 have remained the same for 2024 — $7,500 per employee.

How These Changes Affect Business

The bump in limits each year may impact the bottom line of some companies more than others. Hypothetically, if you did not give anyone at your company a raise, your employer matching contributions would not go up (unless more of your employees qualified as eligible, or more eligible employees opted into the plan). If you gave everyone a big raise, however, your costs might go up significantly. Other factors affecting the equation include if you gave some people raises but not others, if you hired or laid off a consequential number of employees or if you changed your matching percentage.

While your budget and how your company runs are likely your most important concerns, it is further useful to examine how you may be able to help and advise your employees regarding saving for retirement.

Although 68% of U.S. workers have the option to contribute to a 401(k) plan, many of them do not. Whether this is due to personal choice, ignorance or financial concerns is unclear. Further, these percentages fall when the pool is limited to small businesses. Many fewer small businesses offer a 401(k) plan, which was the impetus for kickstarting 401GO. The time, effort and expense of starting at 401(k) can ice out small-business owners, and our aim was to give this segment of the economic population a viable option. Some state governments have followed suit by implementing mandates that employers offer employees access to an IRA, which is better than nothing, but not in the same league as a 401(k).

The fact that you, a small-business owner, are reading this means that you either sponsor a 401(k) plan for your employees or you are considering doing so in the future. Your goals may be business-oriented — you want the best employees and offering good benefits is the way to get them — but you are also helping people get better financial footing by constructing a safety net that can help protect them in their later years.

Ready to help your business grow and improve your employees’ lives by partnering with 401GO? Get started today.

The post 401(k) Contribution Limits for 2024: What Does It Mean to You? appeared first on Fast and Affordable 401k for growing businesses.

These figures are proof that the new mandates — currently active or in the works in close to half of all U.S. states — are helpful in getting Americans to save for their retirement. But is there a plan that’s even more helpful?

What’s Good About OregonSaves

When OregonSaves was first implemented, about two-thirds of all employees in the state had no retirement program at their workplace. Because the average Oregonian who was close to retirement age had an average of $12,000 saved for financing their golden years, state lawmakers felt that creating a way for more Oregonians to save was practically an emergency.

A common criticism of Secure Choice programs is that they merely offer workers a Roth IRA — a savings vehicle they can easily get on their own, regardless of employment. But studies showed that only 3.5% did, versus 70% of those offered the option through their employer. When you ask why, the obvious answer is that it’s easier to enroll at work than to go out and get a Roth IRA on your own. But there are other reasons as well. Opening an IRA without help can be intimidating, especially to younger people and those who are not well-versed in retirement accounts and how they work. Although many people know it’s important to have a retirement plan in place that you contribute to regularly, they put it off.

Additionally, Secure Choice plans provide an easy way to contribute — the money comes directly out of workers’ paychecks. They don’t have to log onto an account to make a contribution, and they don’t have to think about whether they will talk themselves out of contributing this pay period, convinced they need the money for something else.

Right now, OregonSaves has an almost 77% participation rate. The law says that workers must be automatically enrolled in the program, but are given the option to opt out. Inertia works in everyone’s favor here, as a lot of workers don’t take the time or trouble to remove themselves from the plan.

While many retirement plans start workers out with a 3% contribution, OregonSaves starts at 5%, and it increases 1% every year workers stay in the plan until it gets to 10%.

Another advantage to workers participating in OregonSaves is that their accounts are portable, and they can take them with them from job to job (as long as the job is in Oregon).

The advantages of the plan for employers are numerous. Employers have almost no responsibilities with a Secure Choice plan. They have to offer it, but there are no choices or employer contributions to make, and expenses are minimal.

Too Good to Be True?

Oregon wants everyone to know about its progress in getting workers to save for retirement, but the program has some negatives to temper its positives.

Automatic enrollment feels like theft to some Oregon workers. Employees whose opt-out instructions came via email from a source they didn’t recognize sometimes didn’t open the email, and had not been sufficiently informed by their employers of the impending deduction. Once they noticed the money missing, they tried to opt out, but this can be easier said than done, with workers complaining it takes months to get themselves removed from the program, or that the opt-out button they needed to click resulted in a 404 error. This can result in true lost wages, as when they ask for their money to be returned to them, they can be hit with a fee for withdrawing retirement funds early.

Some employers complained that payroll deductions and contributions to the plan are only automatically made if you use certain pre-approved payroll companies. Otherwise, the bookkeeping falls to the employer. And even if OregonSaves works with your payroll company, each transaction means an added fee for the employer, which sometimes amounts to more than the contribution itself.

Customer service has been notoriously bad, with callers reporting surly agents, wait times of over an hour, hangups and repeated requests to divulge their Social Security number or EIN. Results take days or weeks longer than callers are initially told, and indignation over this is partly due to the state outsourcing the management of this program to a private company to which employers are legally required to provide employees’ private information such as Social Security numbers.

Those who stay in the program report paying high fees for management of their retirement income — fees they would not have to pay if they opened their own IRA independent of OregonSaves.

Additionally, a Roth IRA is funded with after-tax dollars, offering employees no benefit of a tax deduction like they would get with a traditional IRA.

The 401GO Difference

While it’s probably true that some Secure Choice programs are better run than others, the bottom line is that you will likely rarely get the quality service you expect with a private company from a government-run plan.

A 401(k) retirement plan through 401GO is superior to OregonSaves in every way.

• Contribution maximums are higher — employees can save more than three times as much of their own money with a 401(k), and can benefit from tens of thousands in employer contributions as well.
• Fees for participants are lower, so they get more out of their investments.
• Plan management is easy and customer service is top-notch.
• Employees place a much higher value on a private 401(k) plan than OregonSaves, meaning you can attract better talent if you opt to sponsor your own retirement savings plan.
• Choices are much greater, so participants are not stuck with funds they don’t want and a performance they believe is lackluster.

The new starter-k plan type is a great alternative to OregonSaves too. These plans have similar plan limits and designs, but for just $25/month (in 2024) small businesses can get a much higher quality plan with better support and no government involvement.

These are the major benefits, but there are so many more. For instance, if you have a trusted financial advisor, we will work directly with them to create the plan you want. Our fees are low — much lower than behemoth investment banks — and our results are no less robust. Setup is fast, easy and cheap. Plus, you can get tax breaks on setup and employer contributions. Are you ready? Start today.

The post OregonSaves Pros & Cons appeared first on Fast and Affordable 401k for growing businesses.

What Is an ERISA Bond?

You likely have heard of ERISA — the Employee Retirement Income Security Act of 1974. This act was passed by Congress to regulate the establishment and management of retirement savings plans. Safeguarding money is always a good idea, but retirement funds in particular are critically important because they often act as a safety net for participants, providing needed care and coverage in later years, when many people are too old or frail to be able to work enough to make up for shortfalls.

ERISA bonds are like a type of insurance that protects employers from liability for fraud or mismanagement that could result in a complete devastation of the plan. ERISA bonds cover losses related to theft, embezzlement and other types of fraud. What if the human resources company you pay to deduct contributions to the plan each pay period neglects to deposit the money into the accounts? Worse, what if the money is gone — stolen by your financial advisor, CPA or other trusted account manager?

If the number of news reports regarding stealing out of 401(k)s is to be trusted, it is not infrequently the employers themselves who are stealing from employees’ 401(k) plans. ERISA bonds help protect employees’ funds from unscrupulous employers in these instances (but they don’t help keep the employer out of jail).

What an ERISA Bond Doesn’t Cover

When you think about insurance that protects investments, it sounds pretty good. By definition, investments are risky, and that’s what makes them valuable. But ERISA bonds don’t protect the investments themselves — as long as they were made legally and correctly. Contributions may still be invested in funds that ultimately lose money. Whether the decision to invest in that fund was made by the employees themselves or a third party is immaterial.

Additionally, like any investment, market fluctuations or other factors could turn a good investment into a bad one. The stock market frequently suffers losses, and if employees are near retirement, they may suffer while waiting for their accounts to regain their value.

Separately, a particular investment could be doing well and then suddenly bottom out. Maybe a company’s factory was in the path of a tornado, or a ship full of inventory sunk in a storm at sea.

The bottom line is your ERISA bond does not cover these types of losses.

Do You Really Need an ERISA Bond?

You may know for sure that you aren’t going to steal from your employees, and you may not have a financial advisor, accountant, external HR provider or anyone else involved in your company’s finances, and for this reason, you may think you don’t need an ERISA bond.

The government, however, doesn’t give you the opportunity to take this gamble. You are required to have an ERISA bond unless your company is exempt, and it probably isn’t. Basically, only religious institutions and the government are exempt from ERISA bonds.

Proof of having secured an ERISA bond is required when your company files Form 5500 each year. You might expect that the penalty for failing to secure adequate coverage would be steep fines or worse, but surprisingly, the law provides no penalty for failing to fulfill this requirement. It’s unusual to be sure, but most companies comply with the requirement regardless, since failure to provide proof of coverage is a red flag that could easily trigger a Department of Labor audit, which may reveal more costly violations than absence of an ERISA bond.

Also problematic (although less so) is an ERISA bond that provides insufficient coverage. Your ERISA bond must be equal to at least 10% of the plan’s total assets. As you can imagine, the value of the plan’s assets can change over time, so the amount of your bond can change as well. That’s why you must perform an evaluation on a yearly basis when you’re filing Form 5500.

Where to Get an ERISA Bond

Here at 401GO, we include ERISA bonding as part of the package with our two bigger retirement plans. With our smaller plan, GO-Starter, companies must purchase their bond separately, either through us or through another approved source.

You can’t get an ERISA bond from just any insurance company — it must be one that has been approved by the Treasury Department. The Treasury maintains a list of approved sureties that is available to the public.

The True Cost of ERISA Bonding

Don’t let the cost of an ERISA bond scare you away from sponsoring a 401(k) plan at your small business. A brand-new plan would not have any assets and thus would require little money for bonding. Additionally, this cost is often bundled into the startup costs of a plan. Small businesses are allowed to deduct up to 100% of the startup costs for a 401(k) plan, so your initial layout is even less than you think.

Here at 401GO, we help small businesses start 401(k) plans safely and correctly — so everyone benefits. Contact us today with questions you have about starting a retirement plan at your company.

The post Understanding ERISA Bonds for 401(k) Plans appeared first on Fast and Affordable 401k for growing businesses.

1.       What does retirement plan success mean to you?

No one wants to lose money, and certainly no one expects to, even though that is a definite possibility in the short term. Most retirement accounts grow 7%-10% per year — do your clients know this, and is this what they’re expecting?

Feel them out on this, and see what their definition of success is. Individual investors will see differing results, depending on how they allocate their funds and what level of risk they have taken, and it’s important for them to fully understand the choices they’re making.

Once you know what your clients expect, you can discuss with them ways of aligning their plan goals with their vision so they can meet their objectives and achieve the outcomes they expect.

2.       Are you getting all the tax breaks you deserve out of your retirement plan?

Getting a tax break isn’t the only reason small-business owners decide to sponsor a 401(k) plan, but it’s probably in the top three. So helping your clients to maximize their tax deductions will make their plan more efficient, and more profitable.

Whether they decide to sponsor a 401(k) plan, offer the opportunity to open an IRA or the Roth versions of either of these determines whether employees make contributions to their retirement plan before taxes or after. But money the employer spends on retirement benefits is tax deductible regardless. Remind your clients that any contributions they make to their employees’ retirement funds only helps their bottom line. Additionally, because these contributions are not subject to payroll taxes, and because the money just grows over time, it’s one of the cheapest — and most valuable — ways to compensate employees.

Sometimes it’s hard for small-business owners to reach that tipping point where they finally decide to get their plan up and running, but you may be able to motivate them by explaining to them how they will benefit with substantial tax credits simply for starting up their plan. Don’t overlook any strategies to maximize tax breaks for your clients.

3.       What irks you the most about your retirement savings plan?

When you talk to your clients about their pain points related to their retirement savings plan, expect to hear about a lack of support and lots of wasted time on housekeeping matters and paperwork. When potential plan sponsors read about these types of headaches online, it can deter them from moving ahead with their idea to start a retirement plan at their business.

401GO’s main objective is to help small businesses get around the expense and complications that come with sponsoring a 401(k) plan, but with this streamlined simplicity also comes the type and level of responsivity that no one will ever get from the likes of Charles Schwab. Although we work directly with small business owners, we also work with financial advisors. We want you to come to us when you’re helping your clients start up their new retirement plans. We even match financial advisors to business owners looking for help because we know plans perform 15% better when a financial advisor is involved.

Other common complaints from plan sponsors include unnecessary complications — an issue you’ll never have at 401GO — and errors. No one can bat a thousand every day, but we come close. And what’s even more important is when a mistake is made, we’re on it immediately, working until it’s fixed.

Regardless of what your clients’ complaints are about their plan or their plan administrator, you can’t fix them if you don’t know about them, so don’t skip over this critical step.

4.       When can you meet to review your retirement plan’s progress?

Too often, a retirement plan becomes set it and forget it. We actually advocate for that on our site, because we know a lot of small-business owners don’t want to put the time and energy into a retirement plan since it would end up taking their attention away from their business. But financial advisors can provide clients a crucial edge that those who don’t benefit from your services can’t get.

And while we provide a set-it-and-forget-it service, we also provide valuable tools to financial advisors and others who want to use them, including extensive reports on contribution levels, earnings and losses and innumerable other important facts that should be considered for discussion at quarterly or annual reviews. We provide dashboards that allow you to monitor the progress of your clients’ plans, and you can compare the plans you manage, such as the size and health of each. You can even access individual participant accounts.

Such meetings are great for keeping your clients informed, but they’re also useful for seeing where changes might need to be made to get your client’s plan more in line with their goals and expectations.

More Knowledge, Greater Success

The above questions are just a sampling of how you can learn more from your clients in order to serve them better — and the better service you provide, the happier they are and the more clients you can expect to come knocking at your door, trying to find out how to get some of what your other clients already have.

To learn more about how you can serve your clients through a partnership with 401GO, contact us today.

The post 4 Key Questions Retirement Plan Advisors Should Ask Small-Business Owners appeared first on Fast and Affordable 401k for growing businesses.

We’re here to help explain what a solo-k is, how you can benefit and what the contribution limits are for this retirement plan.

What Is a Solo-k?

The benefits of owning your own business are many — you make all the decisions, you work whatever hours you want to work, you choose who you want to work with and when. It sounds like a dream — until you consider the drawbacks, one of which is that you get boxed out of joining a 401(k) plan and reaping the benefits of employer contributions. But all is not lost.

While you may be familiar with a traditional 401(k), the solo-k is a plan that is specifically for sole proprietors, independent contractors, freelancers — any small business that has no employees.

Contribution Limits

You are likely aware that you are free to open an individual retirement account — an IRA or a Roth IRA, depending on whether you want to contribute post- or pre-tax dollars. But in many ways, this type of retirement vehicle falls short of providing the benefits of a solo-k. How?

The amount you’re allowed to contribute to an IRA in 2023 is puny: $6,500, or $7,500 if you’re 50 or above. With a solo-k, you can contribute a whopping $66,000 to your solo-k, plus another $7,500 if you’re 50 or older. This is because the rules that govern a solo-k allow you to make contributions as both the employee and the employer. The employee limit is $22,500 for 2023, plus $7,500 if you’re 50 or over. As the employer, you can contribute 25% more of your income (similar to a match), up to the limit. (The rules for calculating what your compensation is are pretty specific, so you may want to have your accountant go over the numbers to ensure you are following the law correctly.)

You can choose from between a traditional solo-k or a Roth solo-k, depending on whether you want to pay taxes on the money you contribute now or when you withdraw it in retirement. There are different reasons to make this decision, but one common reason investors choose a Roth retirement plan is because they expect to be in a larger tax bracket when they retire, so paying the taxes earlier means they save money. If you’re older, this may not be a consideration.

The Spouse Exception

We mentioned earlier that the IRS rules for a solo-k say you must have no employees in order to be eligible to open this type of account, but there is an exception for a spouse who works for you. If your spouse helps you with your business and you pay them compensation for their work, they are also eligible for a solo-k. They may open their own solo-k, or contribute to one that you hold jointly.

This is a great benefit, because by adding your spouse, the two of you may double your contributions to $132,000, or $147,000 if you are both over 50. You can only do this, however, if the spouse earns enough money. They would be allowed to contribute 100% of their salary, and you could contribute the extra 25% as their employer, but if they only earn, say, $50,000, you could not simply chip in to make up the rest.

This type of scenario works best with a couple who earns a lot of money and wants to quickly feather their retirement nest. After all, the reason the extra catch-up amount is allowed for investors over 50 is because they have far fewer years to allow their money to grow before retirement, which is not the case with younger workers.

It’s important, however, to remember when you and your spouse are making these contributions that the limits apply to the individual, which means if either of you contributes to a 401(k) plan at another job, or to an IRA, this money is counted toward the $66,000 total.

A Penny Saved

While it’s true that not everyone has the means to divert in excess of $100K from their bank account to their retirement account, if you find yourself in the position to be able to do this, it’s important to know that the option is available and what the rules are surrounding it. You may decide to sell your home or another large asset, you may inherit money or even win the lottery(!), allowing you to save 100% of what you earn for the year.

A 401(k) account is typically expected to grow 5%-8% per year. When you consider the interest is compounded, the more you put in — and the earlier you put it in — the faster and bigger your nest egg grows.

Ready to open your solo-k? Do it today, with 401GO.

The post Solo 401(k) Contribution Limits appeared first on Fast and Affordable 401k for growing businesses.

Because have been in the business for a while now, we have come to learn the types of questions employees often ask employers about their 401(k) program. We’ll save you some time by providing you with both the questions and the answers below.

1.       Do You Offer a Company Match?

This is the $64,000 question (adjusted for today’s inflation, it’s the $722,560 question). It’s what employees want to know above all else. The reason is obvious — a company match is free money. And depending on how much it is, it could serve as a considerable boost to their compensation package.

If you are just now considering adding a 401(k) plan at your company, you may think you can’t afford a company match. But we urge you to ask yourself — can you afford not to offer a company match?

Companies that offer 401(k) matching funds are considered by employees vastly superior to those that don’t. Not providing a company match means you likely won’t get the best choice of employees. That’s hard to measure monetarily, but many companies opt to save money by choosing a Safe Harbor 401(k) plan, because this type of plan means they don’t have to conduct federally mandated (expensive) audits of their program. The catch? You must offer a match. The purpose of the audits is mostly to make sure you’re treating employees fairly, and the IRS will let you off the hook if you promise to contribute to your workers’ 401(k) accounts.

So let’s say for the sake of argument that you’re offering a match — whether it’s because it’s the right thing to do or because someone made you. It’s important to make sure your employees understand how the match works. Not all matches are created equal. Are you matching 100% up to 3%? Fifty percent up to 6%? Other percentages? Make sure everyone knows what it is and show an example of how it works (Emma contributes 3% of her salary per week ($50) and the company matches it at 50%, so her account grows by $75 per week. That’s $1,300 a year in free money!)

2.       Are There Investment Options?

While there are people who become overwhelmed by too many options, most people want some options. This is what makes some state-mandated 401(k) plans undesirable — there aren’t enough options. But with 401GO, your employees will have options — more than 100 options, in fact. And they won’t have to worry about how to make choices if they’re unsure, because 401GO provides a custom portfolio builder. When employees opt to use this tool, they will answer a few questions such as when their prospective retirement year is and what their risk tolerance is — low, medium or high — and the portfolio builder will take it from there. It takes only minutes.

Some employees will want more control over their choices for investments, however. That’s no problem — they can skip the portfolio builder and move right to choosing their own equity, sector and target date funds as well as bonds. They have the option to monitor them as well and change them anytime they aren’t performing the way they had hoped.

3.       When Do I Become Vested?

Plenty of employees will never ask this question because they don’t know what vesting is. A responsible employer will explain it to them regardless.

It’s important for employees to understand if the money you are putting into their account isn’t really theirs yet. It’s important not just because you don’t want to mislead your employees, and therefore risk possibly disappointing or even angering them, but also because many employers use vesting as a means to keep employees around longer than they might otherwise stay. As an employer, you may ask yourself why you would want employees who can only be convinced to stay if you dangle a carrot like graded vesting in front of them. There could be many reasons. If you’re finding it hard to keep employees, you may want to look at your employer/employee relationships, but on the whole, it’s not unusual for employees to jump ship — especially if your competitors are courting them. A vesting schedule can help convince them to stay put and find out what’s so great about your company.

On the other hand, many employees will see a graded vesting schedule like the reward chart their parents had on the fridge for them when they were little, where they’d get to put a sticker on each day they remembered to brush their teeth without being told, and at the end of a specified time period, they would get a prize. This works even less well with adults. Additionally, if you choose a Safe Harbor plan, you are required to offer immediate vesting.

4.       When Can I Withdraw Money?

In most cases, you have to be at least 59½ years old to start withdrawing money from your 401(k) without penalty (a 10% tax). But there are some exceptions. For instance, if you retire from your job at 55, you may begin drawing on your retirement funds without penalty. You may also withdraw funds without penalty for emergencies, such as if you become permanently disabled, if you want to pay medical bills that are not reimbursed by your insurance that total more than 10% of your adjusted gross income, if you’re unemployed for at least 12 weeks and need the money to pay health insurance premiums or if you owe so much in back taxes that the IRS puts a lien on your 401(k). You might also be able to withdraw money to purchase your first home, complete qualifying home repairs or adopt a child. The money can also be taken out penalty-free if you die, but you don’t get it, your beneficiaries do.

New exceptions as outlined in Secure 2.0 include exceptions for those with a terminal illness, victims of domestic violence and those affected by a federal disaster. Retirement accountholders with an unspecified emergency can withdraw up to $1,000 once in a three-year period, but must pay the money back.

Your employees may have other questions as well — consider connecting with a financial advisor to help you with all the details of becoming a 401(k) sponsor.

The post 4 Questions Your Employees Will Ask About Your New 401(K) and How to Answer appeared first on Fast and Affordable 401k for growing businesses.

The problem is that only about a third of working Americans have any type of retirement account, partly because many work at small businesses that don’t offer them. For this reason, many state governments have created retirement programs that businesses are invited — or required — to participate in. If you’re a small-business owner, you need to know if your state has a mandate and if it does, what you need to do to comply.

States That Have Retirement Plans

As of this writing, 20 states (and two cities — New York and Seattle) have passed legislation to establish retirement plans. They are:

• California
• Colorado
• Connecticut
• Delaware
• Hawaii
• Illinois
• Maine
• Maryland
• Massachusetts*
• Minnesota
• Missouri*
• Nevada
• New Jersey
• New Mexico*
• New York
• Oregon
• Vermont
• Virginia
• Washington*

But many more states are in the process of legislating retirement plans, so if you think you don’t need to worry about it, you’re probably wrong.

Each state has its own rules, and if you operate a business in one of them, it’s important you know what the rules are and follow them, to avoid unpleasantness such as fines and penalties. Below is an FAQ based on the types of questions we’re hearing from small-business owners like you.

Wait, is it even mandated?

Some states with retirement plans targeted to employees of small businesses are voluntary (that’s what the asterisk is for in the list above), not mandated. So of course, there are no penalties associated with failing to implement these programs. Instead, they are meant to provide an easy — and free! — way for small-business owners to provide a worthwhile benefit to their employees.

How many eligible employees trigger the mandate?

For small businesses to be required to participate, they usually must have a minimum number of employees, and this number is often five. This minimum number is slated to change, however, in some states, like California, where it goes down to one eligible employee in 2025, and Oregon, a state with a phase-in with no fewer than six stages of varying requirements. So you need to understand not only what the rules are right now, but what they’re going to be next year and each year after that.

Some states have other requirements outside of employee headcount, such as how long your business has been operating and whether you use an automated payroll system.

What type of plan is mandated or available?

Each state has its own plan with its own name — CalSavers, Colorado Secure Savings Program, OregonSaves, etc. While a couple states offer MEPs (group 401(k) plan), the vast majority are Roth IRAs.

[Sidebar: What is the difference between a traditional IRA and a Roth IRA? Roth IRAs are funded with after-tax dollars, while traditional IRAs are funded with pre-tax dollars. This means if an employee has a Roth IRA, they will not need to pay taxes on their retirement income once they start drawing on it. But if they have a traditional IRA, they will pay taxes on each withdrawal. It sounds like a choice of pay now or pay later, and it is, but the idea behind being able to make this choice is that if you start a Roth IRA when you are young (and presumably in a lower tax bracket), less of your retirement income will be eaten up by taxes than if you paid them later, upon retirement, when you would likely be in a higher tax bracket.]

What is a qualified private retirement plan?

Many states allow you to operate a qualified private retirement plan in lieu of using their plan. You must have your plan up and running and registered by your state’s deadline to avoid fines and penalties.

What qualifies as a qualified private retirement plan? It can be complicated and vary from state to state. Basically, the plan you choose must conform to IRS standards. The IRS has some rules about tax deductions that apply to different retirement plan contributions. If your state (or city) requires small businesses to offer a retirement plan to employees and you don’t want to use the state plan, you must find out what your state deems an acceptable alternative. The requirements of each state can be different.

What are the penalties if I do not implement the mandate in time?

As you may guess, each state has different penalties. They range from as low as $20 up to several thousand dollars, and are usually levied per employee, based on the time period you are out of compliance.

If you’re thinking of offering your own qualified private retirement plan as an alternative to your state’s plan, consider working with 401GO. Our clients love how easy it is to get a plan up and running with us, and how affordable each plan is.

The post Complying with State Retirement Mandates appeared first on Fast and Affordable 401k for growing businesses.

1.       Create the Job Description Carefully

How many times have you read a seriously nebulous job description — one that made you scratch your head and wonder what the job even entailed? Don’t let that be you. If you do, you will undoubtedly get unqualified candidates, and that means hours of time spent weeding through resumes that aren’t good matches for the job.

Before you even start to write the job description, make sure that you give enough thought to exactly what you want your new employee to do. After all, it’s hard to describe something if you don’t understand it yourself. Make some notes — not necessarily for publication — about how the position could change over time, with more responsibilities being added.

2.       Don’t Rely Solely on Websites — Use Your Personal Network

Chances are, you are looking to hire someone locally. Even though many people work from home now, most employers still want to meet employees in the flesh and see them in the office from time to time. For that reason, it’s easy to use your own business and social networks to look for a new hire. Post about your search for a new employee on Facebook, LinkedIn, Instagram and any other social media sites you use. Someone you know might know someone who’s looking for work.

Hiring someone this way is arguably better than hiring a seemingly better-qualified candidate you don’t know. That’s because with a complete stranger, you may find out later that they embellished their qualifications, they get along poorly with others, they call in sick a lot or they have weird, annoying habits such as taking all their calls on speaker, telling everyone in the office about the latest TV show they are watching or burning the microwave popcorn every day.

With someone you know peripherally, it’s harder to keep secrets — and harder to ghost the employer when they decide they don’t like the job or get a better offer.

3.       Do Your Due Diligence

Regardless of whether you know a job candidate personally, you know them through some degree of separation or they are a complete stranger to you, there is no excuse for not checking out their story. Are they really who they say they are? Have they really earned the degrees they said they did? Do they have the experience they say they have? If you don’t think this is important, just take a look at what happened with Rep. George Santos (if that is indeed his name). His election wasn’t just a debacle, it was a public disgrace. Even if your bad hires aren’t public disgraces, they can still be expensive, disappointing and detrimental to business.

Before you hire anyone, call their previous employers to make sure they really worked there and performed the duties they claim to have performed. Do a criminal background check to help determine if they are trustworthy or what the odds are that they will abandon their position to return to jail if they are on probation. Make sure their story checks out.

4.       Offer Employee Benefits

Small businesses are notorious for skimping on benefits. They’re new, they’re small, they need the extra cash to grow their business. We’re not saying it’s not understandable; we’re saying it’s not desirable. Given a choice, an employee will go with the employer that offers them more, whether that’s more compensation, more vacation time, more flexibility or more of something else they want.

Sponsoring a 401(k) plan for your employees is one way to attract (and keep) top talent. People of every age have concerns about being able to afford retirement. If you can help employees assuage these concerns by offering a 401(k) plan, you’ll be ahead of the competition that doesn’t.

The major stumbling block for small businesses and 401(k) plans has been the hassle and expense of setting up and launching the program. 401GO has addressed these pain points and made sponsoring a 401(k) plan fast, easy and cost-efficient. While most 401(k) plans take weeks to get up and running, you can start yours with us in as little as 15 minutes. We also provide payroll integration, so once you set your plan up, you hardly ever have to think about it again.

Fees are lower as well. Our fintech solutions make it possible for you to operate your plan for as little as $9 per employee per month — significantly less than with large banks and investment firms.

If you’re ready to be the kind of small business that attracts the kind of employees you want, contact 401GO today. We can help you set up a 401(k) plan your employees will value.

The post 4 Ideas for Hiring Good Employees appeared first on Fast and Affordable 401k for growing businesses.

We get it — times are tough — but it’s not impossible to save for retirement. And the sooner you start, the bigger your nest egg will be when it comes time to retire and enjoy life. Opening an IRA through 401GO is one of the fastest, easiest and best ways to take concrete steps to a more secure future.

What Is a Millennial, and Why Don’t They Have Any Money?

Today, in 2023, millennials are between the ages of 25 and 40. Most of them likely expected to own homes by now, have a spouse and 2.5 children and spend their weekends mowing the lawn and driving their kids to soccer games and birthday parties. Sadly, many of them have been unable to realize this dream. Why? As Bruce Springsteen (a true baby boomer!) said in his iconic ballad The River, things are bad “on account of the economy.” Whether you understand exactly what about the economy is leaving your pockets empty these days or not, the truth is that all too often, there’s too much month left over at the end of the money.

Anyone who has been to a grocery store or a dollar store in the U.S. this year knows about inflation — so many items are significantly more than they were even a year ago. And inflation isn’t limited to goods and services — it costs more to borrow money now as well. Just a few years ago, mortgage interest rates dipped below 3%; now they’re 7.83%. Likewise, the median home price in West Virginia, according to Zillow, is up to $155,773, while in Massachusetts, it’s $577,875. With the lower mortgage interest rate, that home in Massachusetts will cost you $300K in interest over 30 years; with the new, higher rate, it’s $1 million. Who has a million dollars?! 

Additionally, while millennials owe the lowest average amount in student loans ($33K versus $43K for Gen X and $45K for baby boomers), more millennials have student loans than any other generation. Inflation, rising home and rent prices, and burgeoning debt make up a trifecta of oppression that is keeping this generation down. How can you fight back? By saving, against all odds.

How to Save for Retirement

Michelle Singletary, legendary Washington Post personal finance writer and author of the wildly popular column The Color of Money, frequently quotes her grandmother, “Big Mama,” a nurse’s aide who never went to college but managed to pay off her mortgage by being extra careful with money while raising five grandchildren. How did she do it?

Singletary — and others who give financial advice — tell workers to pay themselves first. If you’re waiting to have money left over to save for retirement, you will never get there. You have to make saving a priority. That’s why participating in a 401(k) plan through your work can help you achieve this goal. The money goes straight from your employer to your retirement account, so you can’t spend it. And if you’re lucky, your employer kicks in some matching funds.

Here at 401GO, we help small and medium-sized businesses get a 401(k) plan up and running so employees can begin saving for retirement sooner. It’s a great service and a great way to save for retirement — but it isn’t the only way. Another useful vehicle for saving for retirement is an IRA.

IRA vs. 401(k)

Most financial gurus agree that 401(k) plans have a bit of an edge over IRAs. But IRAs have their place as well, and many people have both.

The best part of a 401(k) is the match, and if you aren’t getting a match, you may not be any better off with a 401(k) than you would be with an IRA. The match is supposed to be a sort of carrot on a stick that encourages you to give in to inertia and stick with your employer until you are fully vested, rather than skip out as soon as you get a better offer from another company. Without this incentive, employees move around more (and they take their 401(k) money with them).

However, if you’re one of the millions without access to a 401(k) or other workplace retirement option, an IRA could be your best choice. You can own one privately, so it won’t be connected to your employer, and if you ever leave your job, you can roll any lingering 401(k) funds into your IRA. You’ll fund your IRA from your personal bank account, so it’s easy to reduce savings when money is tight, or contribute extra when you get a tax return or holiday bonus.

One big difference between 401(k)s and IRAs is that you can contribute much more money ($22,500-$30,000) to a 401(k) than you can to an IRA, which limits you to $6,500-$7,500. Thus, if you have more money to contribute, you want to participate in a 401(k) if you’re able. If you can invest even more than the maximum in a 401(k), you definitely should open an IRA as well. But what kind? Traditional or Roth?

Traditional IRAs vs. Roth IRAs

With a traditional IRA, you contribute pre-tax dollars to your retirement account and pay taxes on the money when you withdraw it. With a Roth IRA, you pay the taxes up front, and then there’s nothing to pay later when you start making withdrawals. The biggest factor that influences an investor’s decision on which to choose is what tax bracket they expect to be in at retirement. Younger workers often opt for a Roth IRA because they expect to earn more (and get pushed to a higher tax bracket) down the road. The closer you are to retirement, the lower the odds that your tax bracket will change (although your personal financial situation may vary).

If you’re self employed, you may want to open a SEP IRA or a solo-k. These options can allow you to sock away much more than a traditional IRA — $66,000, plus $7,500 if you’re 50 or above.

Helping Everyone Save

At 401GO, you can open the IRA of your choosing within minutes. There’s no ream of paperwork, no waiting days or weeks for approval. 401GO is here to help more Americans save for retirement, and we do that by making the process easier. Whether you’re a millennial, Gen Xer, baby boomer or Gen Z, we can help you be better prepared in your golden years.

The post IRAs for Millennials: Planning for Retirement in Your 20s and 30s appeared first on Fast and Affordable 401k for growing businesses.