Fortunately, as technology and automation have progressed, the costs of operating a 401(k) have dropped significantly. But, not all 401(k) providers have embraced technology, so you may be paying more for your 401(k) than you have to. In addition, every 401(k) provider offers different features and plan options, so you may find your provider doesn’t offer the popular small business 401(k) features you’re hoping for.

In addition to cost and features, some other reasons to consider changing 401(k) providers are:

• Employee engagement: If your employees aren’t participating in the plan, it may be time to switch things up. Consider asking your employees for feedback about the current plan. For example, is the signup process clunky or difficult, or is the website challenging to use? Or maybe your employees would benefit from an auto-enrollment feature that your provider can’t offer? 

• Investment performance: If you aren’t happy with the investment performance or investment options your 401(k) provider offers, it may be time to shop around.

• Customer and Administrative Support: Customer and administrative support vary widely by provider. Make sure you’re working with a provider that is ready and willing to answer you and your employee’s questions as needed.

If one or more of these stick out to you as a reason to change 401(k) providers, then it may be time to see what’s out there. And fortunately, a switch may not be as challenging as you think.

At a high level, switching 401(k) providers involves a hand-off between your old provider and your new provider—not a brand-new plan altogether. This is known as a 401(k) plan conversion, and the entire process can take anywhere from 2 to 3 months. 

Step 1: Transfer assets from the old provider to the new provider.

Once you’ve decided to switch providers, you can start by transferring assets from the old provider to the new one.

This is known as an “asset transfer” and includes a transfer of assets and information. Your plan information will be included in the transfer and will contain critical items like participant balances, any 401(k) loan information, and other documentation. Fortunately, once you notify your old provider of the desired switch, they will be able to work with your new provider to transfer the assets and information.

The transfer process takes the most time of any of these steps. Some providers are slow to complete transfers, and notifications must be sent to employees before their funds can be moved.

One detail to consider during a switch is that your old provider may charge you a one-time termination fee as part of the offboarding process. Check with your provider for details as fee schedules vary, and be sure to weigh the costs of fees versus the possible benefits of lower ongoing fees with your new provider.

Step 2: Review and amend your plan document as needed. 

Your 401(k) has a plan document containing necessary information regarding your plan’s details.

You can think of it as an instruction manual that outlines the specifics like company match, vesting schedule, employee eligibility, etc. You can review and amend your plan document with your new provider during this process. This is a chance to update things as needed and change how your 401(k) plan functions if desired. But, if cost savings are the main driver for switching providers, you may keep your plan document the same and simply restate the plan document with your new provider.

Step 3: Choose your investments.

Next, it’s time to select your investments with your new provider.

Every 401(k) provider will have access to different investment types and fund lineups. So, as part of the switching process, you will work with your new provider to select an investment lineup for you and your employees. Keep in mind a good investment lineup will contain low-cost funds that span a variety of asset classes and sectors to offer broad diversification at a low price. 

In addition, if you have an automatic enrollment feature in your plan, you’ll need to select a default investment option. Typically, a Target-Date Retirement Fund based on the employee’s age is a great option.

But, if you find investments confusing and scary, do not worry—your new 401(k) provider will help you understand the basics of what to consider and ensure you have a good balance of funds to offer your employees.

Step 4: Freeze changes during the transition period.

While switching providers, you will need to freeze changes in your 401(k) plan. 

This is known as a blackout period and can last as long as two months. Employees cannot change their contribution amounts or investment lineup, withdraw, or request 401(k) loans during this time. In other words, employees can’t touch their 401(k) while assets are transferred to your new provider. 

401GO uses a cash conversion process to ease the transition for employees. This will allow them to create new 401GO accounts and begin contributions immediately. It will take time to move existing assets into the new accounts, and much of this process will depend on the efficiency of the old provider. Initially, accounts will only show the newest contributions, but once the transfer is complete, accounts will be updated with accurate information right away.

This can feel like a hassle for your employees, but it’s a critical step to ensure everything transfers over seamlessly and accurately to your new provider. 

Step 5: Enroll your employees in the new plan.

Finally, once the transition is complete, you’ll have the opportunity to enroll your employees in the new plan.

This can be an excellent opportunity to showcase the updated features, investments, and benefits of your new 401(k) provider through a presentation or series of seminars. And fortunately, many 401(k) providers will have ready-made materials you can share with your employees about their new plan. Keep in mind there will likely be many questions about the new plan during this initial phase, but once employees get comfortable with the new provider, it should be smooth sailing.

In the end, while switching 401(k) providers can feel like a big task, it may be well worth the effort in terms of ongoing cost savings, updated features, and better technology.

We’re an alternative to your current provider.

If you’re interested in a 401(k) provider that offers low costs, great tech and support, and a thoughtful and diversified investment lineup, then 401GO is here to help. At 401GO, we provide small business 401(k) plans powered by an easy-to-use platform. Our streamlined approach allows you to get up and running in just minutes with simple and affordable pricing to fit your unique business.

You can learn more on our website or contact us for a free demo.

The post How to Switch Your 401(k) Provider in 5 Simple Steps appeared first on Fast and Affordable 401k for growing businesses.

That’s because a 401(k) comes with various benefits, from tax deductions and credits to increased employee retention and satisfaction. But, there are also several things business owners must consider when starting a 401(k) for their business. In this article, we’ll explore how a 401(k) can reduce your taxes as a business owner.

Read on to learn more.

Personal Tax Savings for Owners and Employees

One of the best advantages of a 401(k) is it allows both owners and employees to save for retirement. And fortunately, retirement accounts like 401(k)s come with some unique tax advantages that separate them from a regular investment account. 

Let’s explore the two primary options below.

Traditional (pre-tax) contributions

A traditional 401(k) means all contributions happen before taxes.

This allows both owners and employees to contribute to their 401(k) without paying federal or state income taxes on those contributions. That can create significant tax savings now by lowering their taxable income. Then, traditional 401(k) funds grow tax-free until retirement, and distributions are taxed as ordinary income during retirement.

It’s important to know that there are annual contribution limits for participants and employers, with special catch-up provisions for employees and owners over age 50. Be sure to check the latest guidance from the IRS, as these contribution limits change over time.

Roth (after-tax) contributions 

With a Roth 401(k), all contributions are made after taxes.

This means that instead of creating a tax deduction now, participants pay taxes today in exchange for tax-free growth and tax-free distributions in retirement. This can be very appealing for participants or owners who anticipate being in a higher tax bracket during retirement and want to lock in their favorable tax rate now.

While this does not create a tax deduction like a traditional 401(k), it can be a great way to diversify tax treatment. In addition, just like traditional 401(k)s, Roth 401(k)s have annual contribution limits for the participant and employer, with special catch-up provisions for participants age 50 or over.

Remember to check the annual contribution limits directly on the IRS website.

Profit-sharing contributions

In addition to the typical matching contributions, businesses can choose to offer profit-sharing contributions to their participants. These contributions are tax-deductible for the previous tax year. This means businesses have time to determine how much they can afford to provide. 

Participants tend to prefer this type of benefit, because it doesn’t increase their taxable income, often making it more valuable than a bonus payment. It also doesn’t count toward the IRS deferral limit, making it particularly helpful for highly compensated employees who may have their 401(k) contributions maxed. 

While there are several different profit sharing methods available, business owners can benefit from using the new comparability calculation. It typically provides more compensation for those who are older and make more money, which can give owners the ability to maximize the contributions to their own accounts.

Business Tax Savings

In addition to the tax savings and advantages as a participant in your own 401(k), there are several business tax savings opportunities to consider.

Deductible Expenses

Since a 401(k) is an employee benefit, the costs associated are deductible expenses.

This includes contributions you make to employee accounts and any administrative costs that come with establishing and maintaining your 401(k) plan. For example, many 401(k) plans include fees for third-party administration, recordkeeping, auditing, and hiring outside consultants. 

These deductible expenses are a great way to save money at tax time while offering a high-quality benefit to your employees.

Offsets compensation

Another unique way that 401(k)s can reduce business taxes is by offsetting compensation.

When creating compensation packages, employers must value the benefits and compensation offered. Often, this means when employers provide a 401(k) with matching contributions, they can either reduce or forego an upcoming raise as their employee is receiving additional compensation through the 401(k) plan. 

This offers unique tax savings for employers because of the way matching contributions are taxed.

In essence, employer matching contributions to 401(k) plans are always pre-tax, meaning they aren’t subject to Federal Income Tax, Social Security, Medicare, or other payroll taxes. This means that if employers offset payroll wages for 401(k) contributions, they can save the additional amount they would have paid in payroll taxes while creating a deductible expense.

Tax Credits

Lastly, specific tax credits are available to business owners to help offset the costs of establishing a retirement plan like a 401(k).

It’s important to note that you can either claim the tax credit or deduct the startup expenses, but you cannot do both. For tax years 2020 and beyond, employers may qualify for a credit of at least $500 and up to $5,000 for 50% of their startup costs. Credit amounts depend on your situation, with the following options:

Be sure to work with your accountant or tax professional to verify eligibility and visit the IRS website for additional details.

Potential tax credits through SECURE Act 2.0

In addition to the current tax credits, the SECURE Act 2.0 would expand tax credits for small businesses with a 401(k). The bill is currently undergoing debate in the Senate after passing through the House in a nearly unanimous vote on March 29, 2022. 

Some key highlights of the bill include expanding the current tax credit to cover 100% of start-up costs (up to $5,000) and creating a new tax credit that offers employers a credit for a percentage of plan contributions made for the first four years, up to a proposed per-employee cap of $1,000.

401GO is Here to Help

At 401GO, we provide small business 401(k) plans powered by an easy-to-use platform. Our streamlined approach allows you to get up and running in just minutes with simple and affordable pricing to fit your unique business.

You can learn more on our website or click below to get started today.

The post How a 401(k) Reduces Your Taxes appeared first on Fast and Affordable 401k for growing businesses.

Since retirement plans weren’t very practical for small companies until a few short years ago, many business owners haven’t developed their 401(k) muscles.

Before you get started shopping, it’s best to understand a few big issues that can trip you up down the road, so you can do your best to avoid them. We’ve grouped these questions into categories.

Responsibility and Compliance 

Q1: What 401(k) services do you provide?

The DOL considers plan sponsors (business owners) to be ultimately responsible for their retirement plans. But, since most are not experts in 401(k) maintenance and compliance, they are able to hire out these services. Professionals have the expertise to advise you so that you have confidence in your plan decisions.

In addition to a trustee, all 401(k) plans need someone to carry three types of responsibility: the recordkeeper, the administrator (TPA), and the custodian. These can be three separate services, or they can be bundled together in different configurations.

The recordkeeper is responsible for making sure that records are accurate and available. They are the bookkeeper, tracking who is participating, who is eligible to participate, what investments the participants own, and all the money that goes in or out. Much of this work can be better performed by technology.

The TPA (third-party administrator) typically provides annual services, such as nondiscrimination testing, preparation of the 5500 form, reviewing distribution requests, and making amendments to the plan document. Most plan sponsors appreciate having a 3(16) administrator to perform specific tasks above what the TPA does. These services vary from provider to provider. (More on these issues in later questions.)

The custodian is responsible for holding the plan assets. This is often provided by a bank/trust, and cannot be held by the TPA or recordkeeper. It’s important the custodian is reputable and trustworthy, since they safeguard the funds. 

Many companies also engage an investment fiduciary to ensure the investments are sound and reasonably priced. Fiduciary responsibility exists at different levels. A 3(38) fiduciary makes investment decisions and implements them, while a 3(21) fiduciary makes the same investment decisions but only offers them as recommendations to the plan sponsor. Without a fiduciary, the burden of selecting investment options falls on the employer.

Although all the responsibility of being a plan sponsor cannot be delegated, these parties can take a substantial amount of the burden off of your shoulders. Ask any provider you speak with what they’ll do, and more importantly, what they won’t do.   

401GO is a bundled solution, meaning we provide all these services. We are a recordkeeper and TPA with built-in 3(16) administration and 3(38) fiduciary services. Our partner Matrix Trust serves as the custodian. If you have an advisor that wants to serve as the 3(38) fiduciary, we’re happy to work with them.

Q2: Do you monitor for noncompliance issues? How often and how is it done?

The IRS requires all 401(k) plans to be tested for compliance annually. These tests will look at whether the plan favors highly compensated employees or business owners over other employees. It is easy for small companies to have trouble with this noncompliance testing, so it’s important to have a provider that can help you watch for problems in advance.

If your company fails the nondiscrimination testing, it may require additional contributions to be provided, or the return of some contributions, or some other changes that could be difficult, expensive, or embarrassing for employers. 

Many providers offer testing and plan review annually because it would be far too expensive to do it more frequently. With our automated platform, 401GO offers constant monitoring, so that problems can be caught while they are small and handled quickly throughout the year.

Q3: Do you provide and manage 401(k) notifications to employees?

401GO will handle all employee notifications, although as the plan sponsor, you are responsible to provide an accurate and up-to-date list of all employees and their contact information. For most employers, this is easily accomplished. Since we offer integrations with most major payroll and HR systems, we can automatically import new employees to reduce administrative hassle and potential liability. 

The government requires certain types of notifications to be made at certain times, and our automated platform ensures that happens correctly.

Q4: Do you calculate employer contributions? Do you track eligibility and enrollment?

These services are commonly needed, but not always provided, so the burden sometimes falls on the employer. While these tasks are not necessarily difficult, they can pose a problem for businesses in two ways.

Ongoing administration tasks, even simple ones, can present hassles, complications and a time cost that many employers can’t—or don’t want to—carry. And secondly, errors can compound the difficulty and strain the relationship with employees.

Because 401GO functions as both a TPA and a 3(16) administrator, we provide these services. We’ll track eligibility and enrollment, send out employee notifications at the proper time, as well as calculate and remit the employer contributions on your behalf. And, because our platform is fully automated, errors are uncommon.

Q5: Can you take over an existing plan? How long does the transfer take?

Any provider would be happy to take over an existing plan, 401GO included. But these conversions can be tricky, because they involve a review of your plan document, possible amendments, and a blackout period where participants don’t have access to their accounts because of all the manual work that needs to be done, as well as a transfer of funds. 

At 401GO, we do cash conversions, which gives participants access to the new plan right away, so they can continue contributing while they wait for existing funds to transfer. While some providers take months to complete a conversion, ours are typically completed in a matter of days, and the switch to the new plan is nearly seamless.

Technical Aspects

Q6: Do you provide an ERISA bond? What is the cost?

An ERISA bond, or fidelity bond, is insurance against losses caused by fraud or theft, and it required for all 401(k) plans. Some 401(k) providers offer a fidelity bond at an additional cost, but many expect business owners to purchase one separately. 

401GO includes an ERISA bond with our GO-Plus plans. We can also recommend a good bond provider, if you prefer to purchase it separately.

Q7: Do you prepare, sign and file the 5500 report?

Form 5500 is a report that is required to be filed annually with the IRS. It ensures that your plan is complying with all 401(k) regulations. It’s important to understand who will be preparing this document, and whether they will have accurate information. 

You’ll also want to know who is signing it, because the signer has responsibility for the accuracy of the report. Many 401(k) providers will prepare the document, but most will want the plan sponsor to sign it. No matter who does the signing, it’s important that you review the form carefully and ensure it’s correct before it’s filed.

Filing of this form happens electronically, and you’ll want to retain proof of the filing.

401GO prepares, signs and files the 5500 and other associated reports at no additional cost. If the IRS finds any irregularities or discrepancies in the report, the liability is on us, not on you. Fines are substantial and they are inflation-adjusted each year, so it’s easiest to avoid them.

Q8: Do you provide for account rebalancing?
Rebalancing ensures that if any funds have substantial shifting in value, adjustments are made to keep the investment ratios the same. Most providers offer scheduled investment rebalancing, usually quarterly. This doesn’t make sense, because the market is constantly moving. 
In this area, automation is more effective than human monitoring, because it removes not only errors, but also emotions and opinions from the process. With our advanced automation, 401GO provides rebalancing right when it is needed.

Q9: Do you provide integration with our payroll or HRIS provider?
401GO offers integration with ALL providers. We have many very reliable integrations with major payroll providers. If we don’t have an API integration with your payroll company, our True360 service will fill in the gaps.

Cost and Setup

Q10: How long does 401(k) plan setup take?

For traditional 401(k) providers, the answer is 6-8 weeks. Many plan sponsors work with as many as four separate service providers, all with their own questions, forms, documents and fees. It’s difficult to manage the communication between all the involved parties, and if something goes wrong, it’s even more difficult to know who is at fault. 

All this complexity is unnecessary for most small businesses. With a few questions to understand your specific situation, 401GO is able to recommend a design that will work well for you. Our in-house experts review the plans to ensure you are comfortable with the final product. We can accomodate any plan design but find most small businesses go with our recommended plans.

This is how 401GO is able to offer a new plan in just 15 minutes. There is no reason a small business should spend 8 weeks on plan design and implementation when the same result can be accomplished in less than a day.

Ask these questions:

• How long before the plan document is ready to be signed? 
• How long until a login and account access is provided? 
• How long before employees can begin setting up their accounts? 

You won’t find a platform with a faster setup process than 401GO. At the end of your 15-minute setup process, you’ll have a plan document, a payroll integration (if applicable), an account login, and automatic emails will be sent to employees within just a few minutes. Employee setup takes only about 5 minutes, and then they’ll be up and running too!

Q11: What will our 401(k) plan cost?

It’s worth it to make a comparison list of the different fees associated with a 401(k) plan. Some fees associated with these plans can be hard to spot or understand, and some plan sponsors have even found their plans to cost more than they are worth.

Start by comparing the most obvious fees: monthly fees, startup fees, and AUM fees. Be sure to consider what your advisor will charge, if you are using one, because this is sometimes separate from the plan provider charges. 

Also look closely at the cost of the investment options you select. These have their own fees, some of which can cost a substantial loss of potential earnings. 401GO offers many high-quality, reasonably priced funds, at an average expense ratio of about 0.08%.

Q13: What other costs should I be aware of?

Some providers charge for a wide variety of additional services, and all these fees can add up. Ask the providers you speak to what they charge for:

• Plan document preparation
• Plan document amendments
• Report preparation
• Plan termination
• Loan establishment and maintenance
• Distributions
• Profit-sharing calculations
• Compliance testing

Most companies will charge for all of the above, but the fees vary quite a lot. 401GO does not charge for report preparation, and we don’t charge a termination fee. Termination fees are especially sneaky, since many employers aren’t aware of them until they are frustrated with their provider and ready to make a change. They’re also notoriously expensive, sometimes costing as much as $2000-$3000.

401GO does not charge transaction fees to participants. Loans, withdrawals, distributions and so forth are included in the cost of the plan.

Perks and Extras

Q14: Do you provide live customer support and a dedicated account manager?

Many modern platforms offer automation and great pricing, but few combine that with excellent customer service. 401GO provides support for both employers and employees from a live human being. Plan sponsors (employers) have a dedicated account manager who knows them and their needs. Our support staff are highly trained, able to solve problems without escalation, and U.S.-based.

Just read our reviews to see how valuable our customer support has been to our clients. This can be a major factor for many companies. All retirement providers make errors from time to time, but it’s important to know those errors or problems will be handled by support staff in a timely way.

Q15: Do you offer financial education and personal insights for participants?

401GO has created a whole course of educational material for users to learn from. This is aimed at helping those who need it most to improve their financial independence.

Additionally, our suite of financial wellness tools offer personalized insights to participants to help them make smarter budgeting decisions. These insights have been proven to be quite valuable to those who take advantage of them.

Download Our Handy 401(k) Buyers Guide

Download our handy 401(k) buyers guide

Your Partner in Retirement

The 401(k) industry is built on bureaucratic regulations. It’s inherently complex, with frequent changes and updates. But it doesn’t mean a small business has to take on the burden of all that complexity alone. 

The modern 401(k) uses these three valuable tools to vastly simplify the process and improve the outcome:

1. Automation
2. Bundled Services
3. Excellent Customer Support

When you’re shopping for a retirement plan, notice how these three elements effect both the quality and the price of the benefit you can offer.

For any additional questions, reach out to 401GO anytime. Our team is happy to answer any questions!

The post Shopping for a 401(k)? Ask These Questions. appeared first on Fast and Affordable 401k for growing businesses.