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.

Having a good grasp on what the choices are helps put investors in a better financial position, and it makes them feel more confident about investing. Two popular options for small-business owners and self-employed individuals are the SEP IRA and the solo 401(k), both of which offer a number of benefits and tax advantages. In this article, we’ll take a look at the differences between these two retirement plans and help you evaluate which may be better for you.

What Is a SEP IRA?

A SEP (Simplified Employee Pension) IRA is an Individual Retirement Account that allows self-employed individuals and small business owners to save for retirement. Close to 50 million people in the U.S. are either self-employed or own small businesses, so the availability of SEP IRAs as an investment vehicle to help save money and build wealth for retirement is critically important.

Contributions to a SEP IRA are tax-deductible and earnings are tax-deferred until withdrawn, making it a great choice for those looking to reduce their current tax liability. Choosing a tax-deferred investment strategy means you avoid paying taxes on your earnings for the time being, keeping more money in your pocket now and allowing your investments to grow without restrictions. Additionally, tax deferment can benefit workers who are more likely to find themselves in a higher tax bracket during their working years than during their retirement years.

The most attractive benefit of a SEP IRA is arguably that the contribution limits are much higher than for a traditional IRA, with the maximum contribution for 2023 being 25% of compensation or $66,000, whichever is greater. 

While many Americans are unable to contribute such large amounts to their 401(k) accounts, those who can and wish to may want to look at opening a SEP IRA. Some who choose to participate in this plan have had a sudden and significant bump in income, while others are simply looking to contribute more as they begin the race toward retirement in earnest.

If you have recently inherited money or you have increased your income through marriage or another means, giving you the ability to save and invest more, the results can make a real difference in the size of your nest egg.

What Is a Solo 401(k)?

Another option for self-employed individuals is the solo 401(k). This type of retirement plan is similar to a traditional 401(k), but designed specifically for self-employed individuals and small business owners — a demographic that would otherwise be shut out of the retirement investment game if it were not for the availability of such investment vehicles.

A solo-k provides the same benefits of choosing a tax-deferred investment vehicle as the SEP IRA does. And although the contribution limits are technically the same — $66,000 in 2023 — depending on how you make your contributions, you may be able to make them faster with a solo-k and thus earn more on your investments.

That’s because with a solo-k, you can make contributions as an employee in lump sums until you reach the limit, rather than as a percentage of your income each pay period (as with a SEP IRA). Additionally, once you reach the employee maximum in a solo-k, you can switch to making contributions as an employer, increasing your savings and reducing your business taxes in one fell swoop. 

If you’re over age 50 and you want to contribute the maximum, a solo-k also provides for the opportunity to contribute a catch-up sum ($7,500 for 2023). A SEP IRA provides no such opportunity, because it is 100% employer funded — employees cannot contribute.

Other Important Considerations

Additionally, if you opt for a SEP as a small-business owner, you must contribute equally to all your employees, including yourself — you cannot contribute more to your own account than to your employees’ accounts. So if you are not prepared to fund your employees’ accounts at the same level as your own — or you think you may hire new employees whose accounts will need funding — this can impact your personal savings. It may be affordable to pay yourself 5%, but if you have to pay everyone the same percentage, you may be able to afford only 2% or 3%, and that means you could fall short of saving the maximum during that year 

However, if you’re a small-business owner, you can’t use a solo-k if you want to make contributions to your employees (unless it’s your spouse) — you would need a SEP in that instance.

Another factor that you may want to weigh when making your decision is that with a solo-k, you can choose between making pre-tax or after-tax contributions; a SEP IRA only gives you the pre-tax option.

Which Is Better? 

The best plan for you depends on your individual situation. Both the SEP IRA and the solo 401(k) offer great tax benefits, so it’s important to consider both options before making a decision. 

With 401GO, there is no paperwork required to open a solo 401(k) account and it takes only a matter of minutes for you to open your account and start contributing.

Disclaimer: Investments hold risk of loss, consult your financial advisor before making a decision on which account is best suited for you. 

The post SEP IRA vs. Solo 401(k): Which Is Better for You? appeared first on Fast and Affordable 401k for growing businesses.

One of 401GO’s primary goals is making investing easier — for companies and their employees. Our automated guided portfolio builder can quickly assist users in making the types of selections they may not be comfortable making on their own.

Choice Overload

Choice overload is real, and although it has become more prevalent since the dawn of the internet, having too many choices has been an American problem for a long time. While some consumers have more trouble making decisions than others, the fact is that the more choices you have, the more difficult it can be to decide. No matter what you’re buying, you want to make the best choice for you. At 401GO, we offer many more choices than other plan administrators — well over 100.

While investing in any of the options we provide is infinitely better than putting your money in a bank account, under your mattress or into your brother-in-law’s latest startup, it’s clear that some options are better for some investors than others. How do you know which are best for you?

Ask the Portfolio Builder

When you use the 401GO portfolio builder, it automatically takes into account such factors as your age and the age at which you expect to retire. It’s critical to consider how long it will be before you will need your retirement funds — the closer you are to retirement, the less risk you want to take on.

For many workers, a 401(k) is their first foray into investing, and at 401GO, we want that to be a good experience — free of angst and regret. To accomplish this, our automated portfolio builder holds your hand through the process, asking you important questions that help us determine your capacity for risk. Next, our algorithms build a customized portfolio, based on all the relevant criteria. All you have to do is watch your money grow!

Getting Comfortable with Investing

Whether your 401GO portfolio is your first time investing or you have been investing for years, know that our guided portfolio builder is an option you have — not a requirement. You can devote as much or as little time and energy to the process as you want. For instance, you can use our guided portfolio builder and then opt not to invest in the funds it recommends. Or you can accept some, but not all, of the recommendations. Or you can build your entire portfolio on your own.

What makes the 401GO system so advantageous is that you can make changes to your portfolio whenever you wish. You are not tied to any single fund for any period of time. Thus, you may want to start investing with the guided portfolio builder, then over time, as you learn more about investing through your own research, you may opt to make changes.

The Rewards of Investing

Time was, an employee’s retirement was funded by their company’s pension plan (if their company had one) instead of a 401(k). In the best-case scenario, employees enjoyed a comfortable retirement, funded by their employer. In the worst-case scenario, the employer went bankrupt before or during the employee’s retirement, leaving them in the lurch. With the passage of the law now known as ERISA in 1974, pensions had to be insured, guaranteeing employees’ benefits. Shortly thereafter came the birth of the 401(k) plan, an alternative that was easier and cheaper for companies to manage than pensions.

While some may lament the demise of pensions which lay all risk at the feet of the employer, one big advantage of a 401(k) plan is the control it hands over to employees. Although employees take on more risk, they may see much larger returns on their investments as well. 

Regardless of whether the investments pay moderately or handsomely in retirement, the choice lies wholly with the employee, which is how many investors prefer it.

The Role of Financial Advisors

As much as we like to extol the virtues of choice when it comes to your investments, we want you to know that you are always free to use your company’s financial advisor to help you make important decisions with respect to your 401(k). We can grant access to your account to your employer’s financial advisor so they can see what your investments are and how they are doing. Your advisor may recommend you stay the course or make changes to better meet your financial goals.

Start Early for Best Results

Your employer has chosen to work with 401GO to provide you with an important benefit — the opportunity to invest in your future. A secure retirement greatly improves quality of life. We have provided our guided portfolio builder and we offer affordable investments as a way to encourage plan participation. With a greater pool of participants, more favorable outcomes are possible.

Get your recommendations from our guided portfolio builder today, and enjoy the benefits of a customized retirement plan for life.

The post Let Our Portfolio Builder Be Your Guide appeared first on Fast and Affordable 401k for growing businesses.

There are two main types: traditional 401(k)s and Roth 401(k)s. Each has its unique advantages, similarities, and differences. 

Differences Between Traditional and Roth 401(k)s

1. Timing of tax benefits 

With a traditional 401(k), you get the tax benefits up front when you make your contributions. This comes in the form of a deduction from your taxable income. Alternatively, with a Roth 401(k), you get the tax benefits later when you withdraw your money during retirement. So, no deduction up front, but you never pay taxes on the money again.

2. Tax treatment of your contributions 

A traditional 401(k) allows you to make contributions on a pre-tax basis. This means that the money you contribute to your 401(k) is not subject to income tax when you contribute. Instead, the money is taxed when you withdraw it during retirement. So, for example, if you earn $60,000 annually and contribute $6,000 to your traditional 401(k), you’ll only pay income taxes on $54,000.

With a Roth 401(k), you make contributions with after-tax dollars. This means you pay taxes on the money you contribute up front, but you can withdraw your contributions and any earnings tax-free during retirement. So, for example, if you earn $60,000 annually and contribute $6,000, you still pay income taxes on the entire $60,000, but you won’t pay any taxes in retirement when you distribute the $6,000 and its earnings.

3. Employer matching contributions 

Many employers choose to offer employees a company match to incentivize saving for the future using the 401(k) plan. Both traditional and Roth contributions are eligible for employer matching. Just recently a law was passed (SECURE 2.0) that allows employees to decide whether they want employer contributions to be pre-tax or Roth. Previously matching contributions were always made pre-tax.

This is important to note if you ever choose to roll over your funds to a new employer or Individual Retirement Account (IRA) because you’ll need to keep the pre-tax and after-tax funds separate during the rollover process. 

Similarities Between Traditional and Roth 401(k)s

Despite their differences, traditional and Roth 401(k)s have many similarities.

• Employers can match contributions. An employer match is normally made pre-tax, but employees can decide if they want that to be Roth now. Employee contributions are eligible for employer matching, whether they are traditional or Roth.

• Contributions are capped. The IRS has annual contribution limits for traditional and Roth 401(k)s. The limits are the same for both and are $22,500 for 2023 or up to $30,000 for employees aged 50 and over.

• No income limits. While Roth IRAs and deductible IRA contributions can be limited by income, traditional and Roth 401(k)s have no income restrictions. This can make them a valuable account type for even the highest income earners.

• You can use both. If your employer offers a traditional and Roth 401(k) option, you can use either one or both. This can be a great way to diversify your income sources for retirement by having pre-tax and after-tax funds. However, remember that both accounts count towards the same annual contribution limit. For example, if you are under age 50 in 2023 and contribute $15,000 to your traditional 401(k), you can only contribute another $7,500 to your Roth 401(k) for a total of $22,500.

• They’re employer-sponsored. Unfortunately, if your employer doesn’t offer a traditional or Roth 401(k), you can’t open one independently.

• Investments grow tax-free. One key benefit of both account types is that your investments grow tax-free. That means as long as the investments are inside the account, growing and compounding for the future, you won’t pay any taxes on the gains, dividends, or interest along the way.  

• Penalty-free withdrawals after age 59.5. Both accounts allow for penalty-free withdrawals once you reach age 59.5. There are also penalty exceptions for death, disability, and hardship. 

Advantages of Traditional and Roth 401(k)s

Lastly, consider the advantages of each when deciding whether to contribute to a traditional or Roth 401(k).

Traditional 401(k) Advantages

The key advantage of a traditional 401(k) is that your contributions are pre-tax (deducted from your taxable income.)

This is often used by high earners who believe their tax bracket today is higher than their future tax bracket in retirement. By contributing to a traditional 401(k), high earners can get a tax deduction at a higher tax rate and then withdraw the funds at a lower tax rate during retirement. 

For example, if you are in your peak earning years, you could pay 32% or more in federal income taxes. So, if you contribute $20,000 to your traditional 401(k), you save $6,400 in federal income taxes ($20,000 X .32 = $6,400.) But, your income in retirement may be much lower, putting you in the 22% tax bracket. This means that the same $20,000 distributed in retirement would only create a tax bill of $4,400 ($20,000 X .22 = $4,400). 

Roth 401(k) Advantages

Alternatively, a Roth 401(k) is funded with after-tax dollars, but the distributions are tax-free during retirement.

This is often used by savers in a low tax bracket today who anticipate a higher tax bracket during retirement. By contributing to a Roth 401(k) in a low tax bracket, you essentially lock in your low tax rate and never pay taxes on the money again.

Ultimately, deciding which type of 401(k) to use depends on a number of factors, and there is no one-size-fits-all approach. Instead, consider speaking with a trusted financial advisor to better understand which is suitable for you and your unique situation. 

401GO Offers Roth and Traditional 401(k)s

At 401GO, we provide small business 401(k) plans powered by an easy-to-use platform. Both Roth and traditional plans are available, and most employers offer both options to their teams. Many small businesses opt to use a safe harbor 401(k) plan, which allows for both Roth and traditional contributions.

If your company is considering starting a new 401(k) plan, or transferring an existing plan to a new provider, please contact us. We would be happy to answer your questions.

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