What are rollovers?

A rollover is a process to move your retirement funds from one plan (employer) to another. This is typically done in one of two ways.

The most common are direct 401(k) rollovers. This is when retirement funds are transferred directly from one institution to another. The account owner doesn’t handle the funds themselves during the process, which helps them avoid potential taxes or penalties.

In contrast, a 60-day rollover pays the distribution directly to the participant. The participant is then required to deposit the funds into a new retirement account within 60 days of receiving the distribution, otherwise the funds will be treated as taxable income. 

Why you should rollover your account

It’s important to understand the advantages of rolling over retirement funds.

• Centralized Management: Rather than having money in several different places, keep all your money in one spot, making it simple to manage and track your finances. 
• Cost Savings: When you leave a job, the recordkeeper of the former employer’s retirement plan may charge fees to maintain the account. Rolling over your savings can help you avoid these unnecessary charges.
• Ease of Process: Managing a single account reduces the unnecessary complexity of managing and monitoring investments in multiple accounts.
• Tax Benefits: Depending on the type of retirement account, you may be able to maintain tax-deferred status, ensuring you don’t incur unnecessary tax penalties. 

How to rollover your plan

The process can get complicated, but 401GO makes it easy. All participants have to do is go into the 401GO account and click on the “Rollover Funds” tab under “Account.” From there, just answer a few simple questions. We will provide them with a letter to send to the previous retirement account provider. Submit the letter and we will handle the rest. 

Prepare for your future even as your present situation changes by taking advantage of rollovers. As always, if you have any questions or concerns, 401GO is eager to help.

The post 401(k) Rollovers: Take Your Retirement With You appeared first on Fast and Affordable 401k for growing businesses.

These provisions are applicable to any client whose principal residence was in a federally declared disaster area or who sustained an economic loss by reason of a federally declared disaster. Examples of economic loss could include damage to personal property from fire, flooding, wind, or other causes; loss related to an individual’s displacement from home; and loss of livelihood due to temporary or permanent layoffs.  

How Disaster Withdrawals Work

A client can take $22,000 from all eligible retirement plans (401(k) plan, money purchase pension plan, section 403(b) plan, and governmental section 457(b) plan). A qualified disaster withdrawal from an eligible retirement plan must be before the date that is 180 days after the latest of

1. Dec. 29, 2022
2. First day of the incident period with respect to the qualified disaster
3. Date of the disaster declaration with respect to the qualified disaster

Your client may repay all or part of the amount of a qualified disaster recovery distribution to an eligible retirement plan if the qualified individual completes the repayment within the 3-year period beginning on the day after the date the distribution was received. If the distribution is repaid, it will be treated as though it were repaid in a direct trustee-to-trustee transfer so that your client doesn’t owe federal income tax on distribution. The 10% additional tax does not apply to any qualified disaster recovery distribution made to your client if repaid.

It is optional for employers to adopt the expanded distribution and loan rules. However, even if an employer doesn’t treat a distribution as a qualified disaster recovery distribution, your client may still do so through this form. However, it is important to note that your client’s employer must have a plan that is eligible for qualified disaster distributions. 

How Disaster Withdrawals Affect Taxes

Financial advisors should remind clients that any qualified disaster recovery distribution they receive should be reported on their federal income tax returns over the 3-year period beginning with the year of receipt unless they elect on Form 8915-F to include the entire amount in income in the year of receipt. The payment of a qualified disaster recovery distribution to your client must be reported as well on Form 1099-R.

To find out if your client was affected by a federally declared disaster and can use qualified disaster withdrawals, consult this list. Even in hard times, there are resources to help. 401GO will be there along the way to guide you and ensure your clients receive the care they need.

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Set Retirement Goals

Before we get to how you should manage your retirement accounts, you must determine what you want or expect out of them. How much money will you need or want in retirement? If you’re 25, it can be a little harder to answer these questions, since almost everything will be variable at this point. Older folks will want to consider such questions as:

• How much income do my spouse and I earn now, and how much do we want to save for retirement? If you are divorced, this life change could impact your retirement in a number of ways. First, if you were married long enough, you may collect more Social Security in retirement based on your spouse’s work history, or you may get less, if your spouse is entitled to some of yours. The same applies to any existing retirement accounts — you may get more or less, depending on whose account it is and the length of your marriage.
• How much money do you need to live happily (or comfortably) in retirement? To determine this number, make a guess as to how much your monthly expenses will be, then add on a figure for how much you expect to spend on extras such as travel. (Warning: This number may be different from what your spouse had in mind.)
• What types of hurdles might you need to clear to reach your goal? This could include known situations such as medical conditions, expected expenses such as tuition or a wedding, or unexpected hits such as a job loss or even the death of a spouse.

Once you have a prize to keep your eye on, you can start saving toward it with purpose.

Prioritizing IRA Contributions in Your Budget

We can’t stress this too highly: Do not wait until “later” to begin saving for retirement. The biggest drawback of waiting is that your retirement savings grows exponentially over time. It’s not like saving $5,000 a year for 10 years and getting $50,000. It’s like saving $5,000 at 8% interest for $5,400 the first year, $5,832 the next year and so on until you get $67,432 in year 10. The later you start, the harder it is to catch up.

When you’re young, retirement seems far off, so you may be tempted to take your $5K and go to Disney World or buy some really sick electronics because the reward would be immediate. But imagine yourself in retirement, only able to eat pizza Mondays through Thursdays when you can use the coupon. It’s a sobering thought.

Regardless of your age, you may fully understand the value of saving for retirement, but at the same time believe you cannot afford it. You may be in significant debt, whether it’s due to college loans, medical bills or some other reason. And while it’s important to pay down debt as quickly as possible, most financial experts advise against putting all your money toward your debt and none into your retirement savings. One reason is the one outlined above — your nest egg will grow bigger over a longer period of time — but also because it can take you decades to pay down your debt, and by the time you’re done, it may be too late to start saving for retirement.

Many companies that sponsor a retirement plan like an IRA automatically take 3% of your income out of your paycheck to deposit into your account. You may opt out, but most employees won’t go to the trouble. This favor is not borne of 100% altruism — companies benefit from higher levels of employee participation. But so do the employees.

If you think you can’t afford to contribute much to your IRA, go over your personal budget and look for areas to cut in order to free up more money for retirement. You’ll thank yourself later.

Understand IRA Contribution Limits

Now that we’ve hammered the point home about contributing as much as you can to your retirement account, we’re going to tell you that there’s a limit. The contribution limit for a 401(k) is much higher than an IRA, which is why an employer-sponsored 401(k) is so much more desirable. But an IRA is nothing to sneeze at!

For 2024, the contribution limit for an IRA is $7,000 if you’re under 50, $8,000 if you’re not. Next year, in 2025, the limits will go up again, and it’s useful to keep them in mind. These amounts often seem more affordable, and if your company offers an employer match, it will be even easier for you to contribute the maximum toward your IRA.

Traditional IRA vs. Roth IRA

If your company lets you choose between a traditional and Roth IRA, you’re going to want to understand the difference between the two. Essentially, a Roth IRA is money you contribute after taxes, and contributions to a traditional IRA are taken out before taxes. So, with a traditional IRA, when you retire and begin to draw on your account, taxes are taken out of each payment. With the Roth, you’ve already paid your taxes, so withdrawals are tax-free.

It may sound like six of one, half-dozen of the other, and it could be, but prevailing wisdom says to go with the Roth if you are younger, because you likely will be in a higher tax bracket by the time you retire, and if you pay your taxes now, when you’re in a lower tax bracket, you could save money.

Final Tips on Maximizing Returns on Your IRA

If you have the time and the interest, you may want to educate yourself further on subjects such as risk and return on investments, diversification for advanced growth, rebalancing your portfolio and how life changes can impact your accounts. If studying these subjects isn’t your idea of after-hours fun, you may want to consider discussing your retirement goals with a financial advisor. Regardless of which of these options you choose — or if you choose neither — the bottom line is that starting early and making regular contributions is the best way to a comfortable retirement.

The post Strategies to Supercharge Your IRA & Maximize Returns appeared first on Fast and Affordable 401k for growing businesses.

1. Calm Down

If you’re scared of investing, understand that this is quite common, but also unnecessary. It’s true that you don’t want to jump into investing without any preparation. But what happens too often is that potential investors become overwhelmed when they consider the enormity of learning about investment strategies, and this paralyzes them and prevents them from moving forward. We would almost be so bold as to suggest that such a scenario is worse than making decisions blindly.

Rest assured that if there was one specific way to invest correctly, everyone would have done it by now and they would be rich. But only some people are rich, and their investments are often not why.

Trust yourself. Start small and vow to make slow and steady progress. Once you begin to understand more and see the fruits of your labors, you will gain the confidence you need to continue.

2. Use Proven Models

A 401(k) is considered superior to an IRA because it allows you to save so much more money. The employee contribution limit for a 401(k) in 2024 is $23,000. The limit for an IRA is $7,000. The downside is that a 401(k) often doesn’t allow you many choices. Sometimes your choices are limited to what percentage of your contributions you want to allocate to the three main areas of investments — stocks, bonds and cash investments.

Many timid investors find this not a drawback, but a plus — no big decisions to make! And we get it. It works for some people. If this is how your company’s 401(k) works, just know that you have the option of opening your own IRA that will allow you more flexibility in choosing what you want to invest in. Take some time to read up on not just stocks that perform well, but might also tie into your interests, such as sustainable agriculture, technology or business.

Regardless of how much choice you are allowed with your retirement portfolio, it’s easy to find pie charts and standard recommendations on what percentage of your contributions you want to allocate to specific types of investments based on your age and risk tolerance.

For instance, experts recommend that younger investors allocate more of their contributions to stocks than older investors. As time goes on, you may want to put more money into a bond ladder, which provides income over time as each bond reaches maturity. Experts further recommend that as you approach retirement, you keep enough cash on hand to cover a year’s worth of expenses, and two to four years’ worth of expenses in short-term accounts. That’s because you want your money to still work for you, but you want to be able to access enough in the event of a downturn. Most downturns don’t last beyond four years, hence the recommendation.

3. Make a Roadmap for Retirement

If you’re in your 20s or 30s, retirement may seem like it is still far off. And by some yardsticks of measurement, it is. But hopefully you have seen some charts showing how important it is to start investing early, even if you don’t have as much to invest. In the early stages of investment, it may be difficult to tell how much you will need to save for your retirement. There are mathematical models, to be sure, that give you some numbers based mainly on your age, but also on a few other factors. They are hardly individual, however. Some factors to consider when you’re planning for your retirement include:

• How much will you collect in Social Security? This number can be affected by not only a change in income, but also a change in marital status or the age at which you choose to retire.
• Do you have a pension? Most workplaces don’t provide pensions anymore, but if you’re in a government career such as teaching or public safety, you may still get a pension.
• Will you work in retirement? Many people imagine they will travel extensively or just relax in retirement, but both of these can get boring. A place to go every day and a little money in your pocket during retirement can make a difference.
• Do you expect to share expenses with a partner? Most often this is a spouse, but it can be a family member or another person who splits living expenses with you.

4. Approach Investing as if It’s Fun (It Is!)

You may see the value of your investments rise and fall over the years, and world events can affect this, including war, famine, weather, global pandemics and more. But investing isn’t like poker or a horse race, so there is no need to panic at the thought of losing a lot of money. As long as you diversify (don’t put all your eggs in one basket!), you should be fine. It’s satisfying — at any age — to watch your money grow and to know that you’re doing important work to take care of yourself and your family in your golden years.

The post How to Build a Retirement Portfolio appeared first on Fast and Affordable 401k for growing businesses.

Compound Interest and You

Compound interest can be your friend and your foe. If you have yet to begin saving seriously for retirement, you may be more familiar with compound interest in its more terrifying form — the extra money you pay to banks every month for the privilege of having a house or car (or credit card debt).

With compound interest, if you owe $1,000, the amount of interest charged each month is added to that $1,000, so soon you are paying interest on $1,050, then $1,100 and so on, and this is why it can take five years to pay off a $1,000 charge on a credit card at 20% interest if you make only the minimum payments.

Interest rates for borrowing money — which are often tied to credit scores and bank accounts — can be the source of serious financial hardship, as well as prevent you from saving more toward your retirement. After all, if you can’t pay for what you need now, how are you going to save for later?

Financial guru and Washington Post columnist Michelle Singletary loves to repeat the often-used and well-loved adage: Pay yourself first. This means, make saving a priority. If you owe thousands of dollars that you’re paying interest on, it may seem counterintuitive not to put every available dollar toward paying it down, but it’s not, and here’s why.

Some purchases, such as a car, can take years to pay off. Others, like a house, can take decades. If you wait until you pay those off before you start saving for retirement, your retirement will look very different. This is the mistake that people in their 20s, and even their 30s, can make — thinking that saving for retirement is something they don’t have to worry about yet.

How Compound Interest Works

If you borrow $400,000 to buy a house at 8% interest over 30 years, you will pay more than $656,000 in interest — more than 50% more than the purchase price of your house at a total cost of over $1 million. If you’re lucky, you can get the same rate of return on your retirement account. According to Time Magazine, a 401(k) can earn you, on average, 5%-8% per year, while SmartAsset says you can expect 7%-10% per year from your IRA.

Now, the kicker here is that if you get a mortgage like the one we just mentioned, you will pay about $3K a month toward it. You likely will not put that much into your retirement account if you are just starting out. But the point we are making here is not that you can get ahead of your mortgage interest rate with hefty contributions to your retirement account, it’s that interest builds quickly.

If at age 25 you start putting $200 a month into your IRA at 8% interest for 40 years, you will end up with about $644,000. If you start when you’re 35, you get $282,000. The reduction in time you’re saving money is 25 percent, but the reduction in income is nearly two-thirds. If you start when you’re 45, you end up with a dismal $113,000.

And remember, interest rates fluctuate. That’s why homeowners refinance. Just a few years ago, mortgage interest rates were below 3%. Now they’re above 8%. This is why investors sometimes panic when interest rates drop, or one of their investments tanks and they see that number on the bottom line shrink precipitously. Time tells us that if we just wait it out, the money will return. But if you are set to retire in the middle of one of these tough periods, you may not have time to wait. That’s why it’s important to diversify.

How Compound Interest Helps Your 401(k)

We’ve mentioned how investing in an IRA over an extended period of time can lead to serious gains over the long run.  This can be amplified, by taking advantage of your employer’s sponsored 401(k) plan.  Many plans will have an employer match, which goes straight into your account, if you contribute as well.  For example, a common employer match is the Safe Harbor Basic Match.  This employer contribution will match your contributions up to a certain extent.  If you contribute 5% or more of your compensation, you will receive a 4% match on top of this.  

While this may seem like a small percentage, over time, this will grow into a large amount.  For example, if $500 is contributed into your retirement account (which can be a mix of employer and employee contributions), at a 8% rate of return, over 40 years of employment, then one can expect an amount of $1,745,000 at retirement.  Not bad!

By saving early, compound interest can work in your favor.  This doesn’t need to be large amounts cashed away all at once, if money is tight.  Rather, modest cutbacks and investing that money can lead to significant growth in the long term.  By skipping a visit to that fancy restaurant, or cutting back on unused subscriptions, or leaving out your daily Iced Salted Carmel Macchiato, and investing this instead, then you could see $8 here or there turn into thousands in the long run.

Financial Advisors & Investing

If your employer offers the services of a financial advisor, it’s probably worth looking into. You can also do your own research, but when you set up your IRA, determine how much risk you are willing to take on. Prevailing wisdom says that the younger you are, the more risk you are able to assume because you have more time to earn the money back, should some be lost. This extra risk can be valuable, as it often pays higher returns. As you age, a portion of your investments should be shifted to more secure funds with lower returns.

The bottom line: Don’t wait. If your employer doesn’t offer a retirement savings plan, you can open a traditional or Roth IRA through 401GO in minutes. If you are a small-business owner, you can set up a plan for your employees with us almost as fast. The days when we could rely on Social Security, Medicare or other government programs to help pay our expenses in our old age are gone. It’s up to us now. Put your first $100 into your IRA and think about compound interest every time you make another contribution. You’ll be glad you did.

The post The Power of Compound Interest: How to Build Wealth for Retirement 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.

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.

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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.

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.

This is good news for investors, and it’s good news for financial advisors as well, since studies show that more than 90% of investors go along with this default option and its algorithms, demonstrating their indifference or reluctance to managing their own financial investments. What do you — and your clients — need to know about how target-date funds serve investors, and how you can help them leverage the advantages these funds have come to offer?

Basic vs. Custom

TDFs are convenient for both participants and plan sponsors because they require little effort on anyone’s part, and they work. But how well do they work? Oftentimes they work well enough, but it’s a fact that a participant’s retirement nest egg could be feathered more luxuriously if they — or their financial advisor — had taken an interest in tailoring the funds according to the individual’s personal goals rather than merely their retirement age.

While it is legitimate for an algorithm to decide, based on a participant’s age, how much they will need in retirement, financial advisors know there are thousands of other factors to consider, including:

• Is the participant married and if so, does their spouse work and contribute to their own 401(k)?
• Is the spouse significantly younger (i.e., has more potential years to earn money)?
• Are there any health concerns on the horizon?
• Does the participant have other retirement vehicles such as a personal IRA or other assets such as a home, vacation home, investment property, business, stocks, jewels, a stockpile of rare beanie babies, etc.?
• What is the participant’s expected lifestyle in retirement? Will they live as they do now, or do they expect to move, downsize, travel extensively or make another major life change?
• Will the participant have substantial expenses in retirement such as paying for eldercare for themselves or their parents, tuition for themselves or their children, weddings, funerals, etc.?
• Does the participant have a large mortgage or a lot of debt to pay down?

The answers to the above questions could impact the level of retirement funds necessary by hundreds of thousands of dollars.

Help with Portfolio Design

Here at 401GO, we offer the services of an automated portfolio builder to help participants better tailor their investments to their needs and preferences. This tool is particularly helpful to participants who work with us because we offer so many more options — more than 100. This level of choice can feel overwhelming to some, which is one reason we created our automated portfolio builder — as a way for investors to participate in their retirement fund choices without feeling overload.

But the automated portfolio builder isn’t for everyone. Many plan participants are happy with their company’s TDF and the algorithm’s management and see no reason to tinker with it. It’s a great hands-off default for those who don’t want to give their retirement much thought.

Others desire more than our automated portfolio builder provides — the personal touch of a real live financial advisor. By talking to 401(k) plan participants personally, learning their goals, determining their tolerance for risk and factoring in other considerations, you can help craft a specific retirement plan just for them.

Important Changes to TDFs

You may be aware that TDFs used to come with fairly steep fees that could impact participants’ gains, but that is no longer necessarily the case, despite the fact that 70% of the TDFs are controlled by just three players — Fidelity, Vanguard and T. Rowe Price. Greater transparency, improved service and competitive fees have grown with the popularity of TDFs, making them more attractive to businesses across the U.S. Still, it can be worth it to your clients to see what some of the smaller players in the game have to offer as well.

The Future of TDF Management

While inflation, interest rates and other factors also have an impact on TDFs and how they are managed, these moving parts are what financial advisors and anyone in finance understands is simply part of the job of overseeing investment accounts.

When you’re working with small businesses, their employees or individual clients, remember that 401GO offers the fastest, easiest path to getting a 401(k) up and running, without any of the usual hassles or constraints. Contact us today for more information.

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