What is ACA?

The Automatic Contribution Arrangement (ACA) is a policy or system implemented under SECURE Act 2.0 to ensure employees are automatically enrolled in retirement savings plans offered by their employers. Under ACA, a predetermined percentage of an employee’s salary is deducted and contributed to their retirement account unless the employee explicitly opts out or chooses a different contribution level.

Making enrollment the default option has a proven track record of increasing participation and helping workers build a financial cushion for their later years.

Who is Affected by ACA?

SECURE Act 2.0 was enacted on December 29, 2022, and this is the important date to keep in mind when determining if a plan is affected. All plans established on or after this date are impacted, unless:

• The company has been in operation less than three years
• The company has 10 or fewer employees (but once the 11th employee is hired, it will affect them)

If your plan was established before this date, you’re exempt.

ACA applies to all types 401(k) and ERISA 403(b) plans, including traditional, Safe Harbor and Starter-k plans. Non-ERISA plans are not affected.

What is Required?

New plans must enroll eligible employees automatically at a default contribution rate. While there is some flexibility in the default rate, it should fall between 3% and 10%, a decision that is made at the plan level and applied to all employees equally.

Additionally, contributions must automatically increase at the rate of 1% per year, until it reaches a predetermined rate, which must fall between 10% and 15%. If the auto-enroll default is 10%, then the auto-increase is not needed.

What is the ACA Deadline?

To comply with this new regulation, the ACA provision must be implemented on affected plans by January 1, 2025. Since this deadline has already passed, it’s important to act now to ensure your plan is compliant. New plans created in 2025 and beyond will have an ACA provision included automatically.

Remember, affected employees must be notified of the details 30 days prior to the effective date. Proactive planning is essential for a smooth transition.

401GO is Here To Help

Updating plans on 401GO is easy. If you’re an employer looking to understand how these changes might apply to your plan, reach out to us. We’ll be happy to talk through the regulations and how they can be valuable to your team.

The post Understanding the Automatic Contribution Arrangement (ACA) appeared first on Fast and Affordable 401k for growing businesses.

Here’s a breakdown of the most impactful changes coming in 2025:

1. Mandatory Automatic Enrollment for New Retirement Plans

Beginning in 2025, any 401(k) or 403(b) plans that were established after December 29, 2022 must include automatic enrollment for employees, unless they choose to opt out. The default contribution rate is typically 3%, with auto-increase of 1% per year up to 10-15%.

Automatic enrollment is proven to significantly boost participation rates, helping employees save for retirement. While it does place a requirement on employers to ensure good communication with employees, it was already a popular provision because of its impact on plan success.

2. Employer-Sponsored Emergency Savings Accounts

Employers will be allowed to offer emergency savings accounts linked to their retirement plans, providing employees with a flexible tool to handle short-term financial needs, reducing the need to borrow against retirement funds. This provision allows up to $2,500 to be contributed to these accounts, with a certain number of penalty-free withdrawals each year.

By offering emergency savings accounts, employers can address one of the biggest barriers to retirement savings: employees dipping into their retirement funds for emergencies. This feature can improve financial wellness and reduce financial stress among workers.

3. Expanded Catch-Up Contributions for Employees Aged 60–63

From 2025, employees aged 60–63 will be eligible to make higher catch-up contributions to their retirement plans, giving them an opportunity to accelerate savings as they near retirement. This new limit allows older participants to contribute up to 150% of the standard catch-up amount for maximum savings.

This provision is a valuable way to help older employees shore up their retirement savings. Employers should ensure their plans are updated to accommodate these increased contributions.

4. Student Loan Payment Matching Contributions

Employers will be able to treat employees’ student loan repayments as retirement plan contributions, making those repayments eligible for employer matching. This provision helps employees focus on reducing student debt while still building retirement savings.

This is a game-changer for attracting and retaining younger employees who are burdened by student debt. Employers that implement this feature demonstrate a commitment to addressing the financial challenges faced by their workforce, while supporting healthy financial habits.

5. Saver’s Match Replacing the Saver’s Credit

The Saver’s Credit, a tax credit for low- and moderate-income individuals, will be replaced by a Saver’s Match. The federal government will match 50% of an individual’s contributions to a retirement account, up to $1,000 annually. The match will be deposited directly into the retirement account rather than being issued as a tax credit.

This change provides low- and moderate-income employees with a tangible boost to their retirement savings. Advisors should consider how to communicate this benefit to eligible clients and ensure accounts are set up to receive these matches.

Looking Ahead

These 2025 SECURE Act 2.0 provisions are a significant step toward improving retirement readiness for workers across the country. Consider the potential benefits of adding some of these provisions to your existing retirement plan. By understanding these changes and preparing ahead of time, employers can build a solid strategy for providing maximum value to employees.

Need help navigating SECURE 2.0? Contact us today for expert guidance on updating your retirement plans for 2025 and beyond.

The post Navigating 2025 SECURE Act 2.0 Provisions appeared first on Fast and Affordable 401k for growing businesses.

Batman vs. Superman. Hulk vs. Wolverine. Frankenstein vs. Dracula. These are legendary contests, and while we don’t claim that 401GO vs. Colorado SecureSavings is as entertaining as the others, we assert that the results are much more relevant. Our contest is more like a presidential debate than a boxing match, and we’re letting you decide who the winner is.

The Premise

Here at 401GO, we want as many people as possible saving for their retirement. That’s why we started our company — to help small businesses offer retirement plans to their employees. So you might think we would be in favor of Colorado SecureSavings, and in a way, we are. Colorado SecureSavings is much better than nothing. It’s just not as good as 401GO.

What Is Colorado SecureSavings?

Created by the state government, Colorado SecureSavings aims to address the 40% of workers in the state who don’t have access to a retirement plan — almost a million people. Under the state law, employers are required to offer this plan to their employees, unless they have another retirement plan in place already.

As a small-business owner, you may wonder what the Colorado plan offers that workers cannot get by simply opening their own IRA, and the answer is: not much. The hook is that when employees sign up, the money comes directly out of their paycheck, before they get a chance to spend it. This kind of savings is marginally better than paying too much in taxes in order to get a big “refund” in the spring, but you can do better for your employees.

What Is 401GO?

With 401GO, you get many more options as an employer — and more control.

One of the greatest barriers — whether real or perceived — to small-business owners sponsoring a retirement plan for employees is the time and money it takes to get the plan up and running. Some small-business owners simply can’t afford it, while others just don’t want the bother. With 401GO, you can get a 401(k) or IRA program up and running in minutes — not days, weeks or even months. And the cost is minimal.

We concede that this minimal cost (usually $79 per month plus $9 per participant) is greater than the cost of Colorado SecureSavings (zero!), but we believe that you get what you pay for. Free plans are typically worth what you pay for them.

How Is 401GO Better?

One great benefit of working with 401GO is that you get to choose your investment options. You may not be immediately excited by this if you are not familiar with investment options and making choices about them. However, you don’t have to do it alone. We offer guidance via our portfolio builder, but you are also completely free to use your accountant or financial advisor, or make the choices on your own.

You are likely aware that investors should make different choices depending on factors such as their age and risk tolerance, and if this is not an option, employees will not be well-served by your plan. Additionally, without options or proper knowledge, investors may find themselves in a default investment that doesn’t perform well. This can have a tremendous impact on the size of an employee’s nest egg.

Many financial sites devote time to demonstrating how money can grow exponentially over the years, and how impactful it is to start young. Imagine that two workers — one who works at a small business that uses Colorado SecureSavings and another who uses 401GO — invest the same amount of money, but one comes out much richer in the end. Choices matter.

Other Important Differences

With Colorado SecureSavings, employers cannot make contributions to their employees’ retirement accounts. You may believe you are not in a financial position to make contributions yet either, but you may be able to one day. And with Colorado SecureSavings, that is not an option.

One of the biggest draws for employees looking for work is benefits, and specifically a 401(k) with a match. The establishment of a 401(k) program demonstrates the stability of the company as well as the employer’s dedication to workers’ well-being. It puts you ahead of the pack of companies trying to attract the best talent.

And because 401GO offers payroll integration, it’s easy for your company to make the necessary deductions and payments every pay period. Not so with Colorado SecureSavings — deductions must be made manually every pay period. They say the program is free, but they don’t count the hours of labor you must dedicate to facilitation.

The Verdict

We will leave the final tallying up to you, but we have full confidence that shrewd small-business owners in Colorado will see the benefits of working with 401GO. To learn more about 401GO, peruse our site or chat with us today.

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

Most people know that socking money away in a 401(k) is a good strategy for helping to ensure a more secure retirement. But not everyone understands the tax benefits involved — not just for participants in the plan, but also for the business owners and corporations that sponsor the plans. And although small-business owners stand to gain less than larger businesses in the form of tax breaks, these gains are often more valuable to a small business because they have less flexibility in their budgets. 

Here at 401GO, our goal is to help businesses sponsor retirement plans for their employees so that more workers have more secure futures. That’s why we want everyone to understand the tax benefits of retirement plans.

The Tax Benefits of Retirement Plans for Small Businesses

Historically, small businesses with 401(k) plans have been few and far between, leaving a lot of workers with no access to retirement savings vehicles. The problem was so widespread that state governments have taken it into their own hands, mandating that many businesses now provide access to a retirement plan to their workers, and offering a free Roth IRA option for those that want it. This is definitely a good thing, it’s just not a very good thing, because these workers already have access to IRAs — the state plans just allow for automatic contributions that come directly from paychecks. So many of these workers still don’t have access to 401(k) plans.

But if you’re a small-business owner, you know the reason most small businesses weren’t offering their employees a 401(k) plan wasn’t due to a Scrooge-like management style — it was because of the hurdles they had to clear to get a 401(k) off the ground.

If you have ever talked to a brokerage firm about starting a 401(k), you know what we’re talking about. Small-business owners are not preferred clientele at brokerage firms, and it’s hard for these startups to afford all the fees associated with sponsoring a 401(k) — and keeping it running. That’s why we started 401GO — setup is easy and fees are minimal.

But of course some fees are necessary, because everyone needs to pay the costs associated with whatever goods and services they provide. So even though our fees aren’t high, it is still an expense for small-business owners. And that’s why we want you to understand that some of these costs are offset by tax breaks for small-business owners. What kind?

·       A 401(k) is a deductible expense: Because your 401(k) plan benefits your employees, you can deduct any expenses related to it from your taxes. So any and all startup costs, ongoing costs, annual fees, fees for services of professionals such as human resources professionals, accountants, auditors, CPAs — all of these are deductible. Heck, even matching contributions are deductible. Not all 401(k) sponsors offer a match, but when you consider the benefits (employees value it and you can write it off), it seems like a no-brainer.

·       Tax credits for new plans: Your company may be eligible for tax credits for starting a 401(k). These tax credits can be a great benefit, but you cannot claim this tax credit and deduct the startup expenses on your taxes — it’s either/or. One may be more beneficial to you than another, and determining this is best done by your accountant or tax professional. Your tax bracket, how many employees you have and what types of other deductions you are eligible for may tip the scales in favor of one choice over the other. 

As the SECURE Act continues to morph, small businesses are getting greater advantages: Previously, a small business with 50 or fewer employees could deduct 50% of startup costs up to $5,000, but now it’s 100%.

·       Save on compensation: While we don’t recommend withholding raises at your company, you may be able to pay workers less if you clearly explain to them how matching contributions are money they get from you, even if it isn’t in their paycheck. (This may be easier to do if you don’t have a complex vesting schedule.) The more compensation you can pay as matching 401(k) contributions, the more your company saves, because these contributions are tax-deductible, while wages aren’t.

Personal Tax Benefits

As great as it is for your employees to have access to a 401(k) plan, it’s great for you too, and not just as a business owner, but also as an individual. That’s because once you sponsor a 401(k) plan, you can contribute to it as well. When you get the company match, it’s like a double dip, because the money goes into your personal account, but you can also deduct that match on your taxes, as you do for other employees.

If you’re contributing to your 401(k) with pre-tax money, you’re saving now because you’re not yet paying taxes on that income. If you have a Roth 401(k), you save because you won’t have to pay taxes later, when you’re making withdrawals. This could benefit you in two ways. Younger workers often benefit more from a Roth retirement plan because they are usually making less money than they will when they are ready to retire and start making withdrawals, and are thus likely in a lower tax bracket. Paying only 15% tax on your retirement income versus 24%, 35% or even more can save a bundle. Additionally, if your company is still new and you aren’t making a great deal of money, you can stand to benefit even more from this (assuming your continued success and growing salary). These individual benefits add up.

Sponsoring a 401(k) plan at a small-business is a personal decision that is greatly influenced by finances. If you determine it makes good business sense for your company to sponsor a 401(k) plan, contact 401GO today. There’s no obligation — just great information.

The post The Tax Benefits of Retirement Plans appeared first on Fast and Affordable 401k for growing businesses.

As a small-business owner, if you’re thinking about sponsoring a 401(k) plan, you may wonder about a company match. Are small businesses required to offer a 401(k) match, or is it merely an option? The short answer is no, you don’t have to provide matching contributions to your employees’ 401(k) accounts, but there are good reasons to do it anyway. Below, we discuss the pros and cons of providing employer matching contributions as part of your 401(k) plan.

Offering an Employer Match Makes Employees Happy

The best — and arguably most motivating — reason to offer an employer match is because it’s a benefit employees will value. Employer satisfaction and loyalty has been mutating for a long time — more quickly post-Covid. An entire category of memes has been born just to mock employers who believe that buying workers pizza for lunch or allowing them to wear jeans to work on certain occasions is enough to keep them happy and invested in the company and its mission. Workers are definitely choosier today about which company they work for than they used to be.

That’s why simply having a 401(k) at your company makes you more attractive to potential employees than companies that don’t. By extension, if you offer employer matching funds, you will be ahead of any competitors you have that don’t. If most of your competitors offer matches, offering one at your company won’t put you ahead, but it will still help because you will no longer be behind.

Offering an Employer Match Helps You Save Money on Taxes

In this space, we have often talked about the fairly sizable tax breaks you get for starting a 401(k) — you can write off up to $5,000 per year for three years. But employer matching funds are deductible every year, for as long as you make them.

Depending on how many eligible employees you have and how many opt to participate in the program, you could pay a few thousand in matching funds or tens of thousands. Regardless, it’s all tax deductible. This actually can save you money twice. For instance, say you hire an employee and offer to pay them $50,000. That entire amount is a labor cost for your small business. But what if you offer to pay them $45,000, but you explain to them that you will be contributing thousands more to their 401(k), should they choose to participate? If the amount was the same — $5,000 — you would come out ahead, because the $5,000 is deductible when it’s an employer match to a retirement plan, but it’s not when it’s simply a labor expense.

Offering an Employer Match Makes You Feel All Warm & Fuzzy Inside

One reason small-business owners want to make employees happy is because happy employees work harder, are more productive and are more loyal. These are all benefits for your company. But what if it didn’t benefit your company? Would you still do it (assuming it didn’t harm your company)? Maybe not, but if you did, you could still derive some personal benefits.

Employer matches aren’t charity in the same way that raises aren’t charity, but giving employees more compensation for the work they do — assuming they are deserving — will make you feel less like a Scrooge and more like Robin Hood (without the stealing part). If this isn’t enough to motivate you, think about the service you would be doing your employees by helping them save for their futures — something they might not be able to do without your help. And it wouldn’t just be them you were helping — it would be society at large. People who can afford to live comfortably in retirement have less need for social programs funded by the government such as Medicaid, SNAP (food stamps) and Supplemental Security Income. They would visit food banks and soup kitchens less frequently, leaving these resources for other needy people.

Of course, there are some downsides to offering employer matches.

Offering an Employer Match Costs Money

Even though employer matching funds are tax deductible, they are still an expense you have to fund. If you have very few employees, an employer match might not cost much, but the government defines a small business as one with fewer than 500 employees. So if you have hundreds of employees and you offer a match for their 401(k) contributions, this will definitely be a noticeable expense.

Offering an Employer Match Can Mean More Paperwork

So much is done electronically now that the administrative side of providing an employer match is not nearly as onerous as it used to be. You have to set it up, but once it’s done, it can occur automatically every pay period, depending on how you manage payroll.

Offering an Employer Match Can Be a Hassle with Respect to Audits

When 401(k) plans were conceived, the government made rules that were intended to prevent companies from directing most of the benefit toward highly compensated employees. After all, the point of 401(k)s is to benefit everyone who is eligible. To this end, the IRS requires businesses to conduct audits to prove they are being fair and following the rules. These audits can be time-consuming and expensive, and businesses are required to find their own qualified auditors — the IRS doesn’t do it for you. Additionally, if any errors are found, businesses must correct them — at their expense.

That’s why some businesses choose to open a Safe Harbor 401(k). With this type of retirement plan, you are exempt from audits. But depending on what type of Safe Harbor plan you choose, you may be required to provide employer matches — even if the employees themselves do not contribute to their accounts.

Employer Matches: Yea or Nay?

We’ve given you a lot to think about. When you’re done, contact us to help you set up the type of 401(k) plan you want to offer your employees.

The post Are Small Businesses Required to Provide a 401(k) Match? 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.

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.

Employers who will fall under the mandates in the coming year may wonder whether this plan or an alternative is the best choice for them.

The Retirement Problem in Maryland

It’s estimated that up to 70% of the employers in Maryland are small businesses. Nationally, less than 25% of workers at companies with 10 or fewer employees have access to a work-sponsored retirement plan. With increased reliance on social services, which is ill-equipped to provide a comfortable living, it’s important to help employees become more involved in their own retirement planning.

The Maryland program is patterned after other successful programs, such as OregonSaves and CalSavers, with a couple of unique additions. It’s intended to provide a savings option for those who don’t already have one, not as a replacement for existing retirement plans.

MarylandSaves: The Details

This program, like several others, is essentially a payroll-deduction Roth IRA. It is for companies that have been in business at least 2 years, use a payroll service, and do not already offer a retirement plan to employees.

The accounts essentially belong to the employee, and can move with them from job to job, with no need for a rollover or other change.

Employees are automatically enrolled in the plan, at a default contribution rate of 5% of gross income. Participants can opt out, or they can change their contribution level any time. The plan also features auto-escalation, which increases their contribution by 1% per year, up to 10% of the gross income. The first $1000 are deposited into an emergency savings account, and subsequent funds are deposited into the IRA.

One unique feature of the program is the bridge option, which allows participants to defer their Social Security enrollment and receive MarylandSaves funds instead. Since many Americans claim Social Security before the full retirement age (67), which prohibits them from receiving full benefits, this deferment can potentially be useful to help Marylanders claim their full amount.

The program is available at no fee to employers, and they have no fiduciary or plan management responsibility. The employer is also barred from contributing to employees accounts. Their only obligation is to enroll, and to facilitate the payroll deduction.

At this time, no compliance timeline or penalties have been established.

The Dark Side of Secure Choice

The benefits of the Maryland program are clear: no cost and no liability for employers means the main barriers to work-provided retirement planning are removed. A closer look reveals some potential downsides.

1) Income Limits: If employees earn too much, they are not eligible for the program. It’s also not an effective vehicle for those who are close to retirement.

2) Contribution Limits: Far lower than a 401(k), Roth IRAs only allow contributions of $6,000/yr. If an employee has an additional private IRA, they’ll need to track these limits themselves.

3) No Matching: Employers are barred from making matching contributions to employee accounts.

4) No Protection: The Illinois program is not subject to worker protetctions under ERISA, which requires fiduciary oversight, plan information to be provided to participants, and the establishment of a grievance and appeals process.

5) No Tax Benefit for Employees: Since Roth IRA contributions are made post-tax, workers looking for more immediate tax benefits will not get them. By contrast, 401(k) plans offer both pre- and post-tax contributions.

6) Poor Investment Options: The small selection of investments available to Illinois employees may not be suitable for everyone. And, the default age-based target-date funds have been underperforming and may not be very helpful in accomplishing wealth building.

7) No Proven Effectiveness: Oregon was the first state to mandate a secure choice plan, which began in November 2017. By April 2020, the average account balance of it’s 67,000 participants was only about $750. This calls into question how useful these plans really are for encouraging retirement readiness.

The Best Alternative to Secure Choice: a 401(k)

If an employer is required to participate in something, they may find a 401(k) to be a better option for their business than the state-mandated program for several reasons. Most of these reasons are apparent when the downsides of secure choice programs are clearly understood, but three main benefits stand out.

1) Tax Benefits: Implementing a new 401(k) plan can potentially qualify an employer for up to $5000/yr in tax credits for 3 years. And, matching contributions are usually tax deductible. Many employers find they prefer to give the money to employees rather than spend it in taxes.

2) Employee Retention: A surprisingly high percentage of employees would rather receive additional benefits than a pay raise, and more than half consider benefits when deciding whether to accept a new job.

3) Less Burdensome than in the Past: Especially for small businesses, traditional 401(k) plans have been expensive, complicated, and come with excessive liability. New platforms like 401GO provide employers with an option that is inexpensive, unbelievably fast, and very low in administrative burdens and fiduciary liability. 

Understand the Options

New platforms like 401GO are becoming available now that give smaller employers flexibility and freedom that they never had access to before. For less than the cost of a gym membership, a business owner can give workers a robust 401(k) plan that levels the playing field and lets them compete in the labor marketplace.

Consider these features:

1. Automated setup takes just minutes, not weeks.
2. Automated administration, compliance, and payroll integration require almost no time from employers and eliminate worries.
3. The easy-to-use platform gives participants easy account access, increased control and hundreds of investment options.
4. Live, world-class customer support is available to both employers and employees.
5. Plan flexibility allows employers to add the components that meet their needs.
6. The financial wellness tool helps users make wise financial choices and build their wealth.
7. 401GO serves as the fiduciary, the administrator and the recordkeeper, removing these worries from business owners.
8. At just $9/user/month with no setup fees, 401GO is much more affordable than competitor plans.

Ask for more information, become a partner, or start a plan today.

The post MarylandSaves Retirement Program: Pros and Cons appeared first on Fast and Affordable 401k for growing businesses.

Employers who will fall under the mandates in the coming year may wonder whether this plan or an alternative is the best choice for them.

The Retirement Problem in Connecticut

It’s estimated that almost 600,000 workers in Connecticut do not have access to a work-sponsored retirement plan. With increased reliance on social services, which is ill-equipped to provide a comfortable living, it’s important to help employees become more involved in their own retirement planning.

My CTSavings is patterned after other successful programs here in the U.S. It’s intended to provide a savings option for those who don’t already have one, not as a replacement for existing retirement plans.

My CTSavings: The Details

This program, like several others, is essentially a payroll-deduction Roth IRA. It is for both for-profit and non-profit companies that have at least 5 employees who received at least $5000 in wages during the previous year, and do not already offer a retirement plan.

The accounts essentially belong to the employee, and can move with them from job to job, with no need for a rollover or other change.

Employees are automatically enrolled in the plan, at a default contribution rate of 3% of gross income. Participants can opt out, or they can change their contribution level any time.

The program is available at no fee to employers, and they have no fiduciary or plan management responsibility. The employer is also barred from contributing to employees accounts. Their only obligation is to enroll, and to facilitate the payroll deduction.

Employer Compliance Timeline

My CTSavings has three waves of implementation scheduled.

• Wave 1: June 2022 for 100+ employees
• Wave 2: October 2022 for 26+ employees
• Wave 3: March 2023 for 5+ employees

The Dark Side of Secure Choice

The benefits of the Connecticut program are clear: no cost and no liability for employers means the main barriers to work-provided retirement planning are removed. A closer look reveals some potential downsides.

1) Income Limits: If employees earn too much, they are not eligible for the program. It’s also not an effective vehicle for those who are close to retirement.

2) Contribution Limits: Far lower than a 401(k), Roth IRAs only allow contributions of $6,500/yr (2023). If an employee has an additional private IRA, they’ll need to track these limits themselves, and take care not to over-contribute.

3) No Matching: Employers are barred from making matching contributions to employee accounts.

4) No Protection: The Connecticut program is not subject to worker protections under ERISA, which requires fiduciary oversight, plan information to be provided to participants, and the establishment of a grievance and appeals process.

5) No Tax Benefit for Employees: Since Roth IRA contributions are made post-tax, workers looking for more immediate tax benefits will not get them. By contrast, 401(k) plans offer both pre- and post-tax contributions.

6) Poor Investment Options: The selection of investments available to Connecticut employees may not be suitable for everyone. The default selection places funds in a money market for 60 days, and then into an age-appropriate target retirement date portfolio. Other retirement vehicles may have an investment lineup that is more robust and effective for wealth building.

The Best Alternative to Secure Choice: a 401(k)

Employers may find a 401(k) to be a better option for their business than the state-mandated program for several reasons. Most of these reasons are apparent when the downsides of secure choice programs are clearly understood, but three main benefits stand out.

1) Tax Benefits: Implementing a new 401(k) plan can potentially qualify an employer for up to $5000/yr in tax credits for 3 years. And, matching contributions are usually tax deductible. Many employers find they prefer to give the money to employees rather than spend it in taxes.

2) Employee Retention: A surprisingly high percentage of employees would rather receive additional benefits than a pay raise, and more than half consider benefits when deciding whether to accept a new job.

3) Less Burdensome than in the Past: Especially for small businesses, traditional 401(k) plans have been expensive, complicated, and come with excessive liability. New platforms like 401GO provide employers with an option that is inexpensive, unbelievably fast, and very low in administrative burdens and fiduciary liability. 

Understand the Options

New platforms like 401GO are becoming available now that give smaller employers flexibility and freedom that they never had access to before. For less than the cost of a gym membership, a business owner can give workers a robust 401(k) plan that levels the playing field and lets them compete in the labor marketplace.

Consider these features:

1. Automated setup takes just minutes, not weeks.
2. Automated administration, compliance, and payroll integration require almost no time from employers and eliminate worries.
3. The easy-to-use platform gives participants easy account access, increased control and hundreds of investment options.
4. Live, world-class customer support is available to both employers and employees.
5. Plan flexibility allows employers to add the components that meet their needs.
6. The financial wellness tool helps users make wise financial choices and build their wealth.
7. 401GO serves as the fiduciary, the administrator and the recordkeeper, removing these worries from business owners.
8. If you currently use a financial advisor, the advisor can partner with 401GO to help manage your plan.
9. At just $9/user/month with no setup fees, 401GO is much more affordable than competitor plans.

Ask for more information, become a partner, or start a plan today.

The post Connecticut Retirement Program My CTSavings: Pros and Cons appeared first on Fast and Affordable 401k for growing businesses.