Important Deadlines

It is vital for small businesses to be aware of the following Safe Harbor 401(k) deadlines:

• October 1, 2024: The latest start date for a newly-established Safe Harbor plan for 2024
• December 1, 2024: The last date to notify employees about adding a Safe Harbor matching contribution to an existing 401(k) plan for 2025; and the deadline to elect the 3% non-elective contribution for an existing plan for 2024

Meeting these deadlines allows businesses to maximize the benefits of a Safe Harbor 401(k) plan, both for the company and its employees, while ensuring compliance.

The Safe Harbor Run Down

A safe harbor 401(k) plan is a strategic option for small businesses. Annual IRS nondiscrimination tests are designed to ensure fairness in how plans run, so that they don’t favor top level employees over the rest. Many small plans will fail these tests, and Safe Harbor gives them a way around it. By incorporating certain features, Safe Harbor 401(k) plans can circumvent annual testing.

What’s the trade-off? Employers will need to make contributions to employees’ accounts. These are done in one of two ways: either a matching contribution or a non-elective one. Matching contributions tend to be more popular, but both types have benefits. Here’s one example of how a matching contribution might be structured.

100% of the employee’s contribution up to 3% of their pay, then
50% of the next 2% of their pay, resulting in a 4% match for employees who contribute 5% of their pay.

Non-elective formulas are so-called because employees receive the contribution whether they elect to contribute to their own account or not. These are often an annual contribution of 3% of employees’ pay.

Another significant benefit of Safe Harbor 401(k) plans is that they require immediate vesting (except for a QACA Safe Harbor plan that will allow up to a two-year cliff). This means that the employer’s contributions belong to the employee from day one, providing them with a sense of security and immediate ownership over their retirement savings. This feature not only promotes employee satisfaction but also helps in retaining talent by offering them tangible, immediately accessible benefits.

Consider Time for Setup

Safe Harbor plans must begin by October 1, but smart business owners start earlier and consider the time required for setup and onboarding. Many retirement plan providers need weeks to complete setup, so although the IRS start date deadline is Oct. 1, the provider deadline might be a month earlier — or more.

Since 401GO has a 15-minute automated setup process, businesses can start their plan setup as late as September 30. As long as their documents are signed on that date, the plan can begin the following day and remain within the guidelines.

Obviously, we hope you won’t need to cut it that close, but if you do, we’ll be here. Give us a call to get your questions answered today.

The post Why It’s Important to Think About a Safe Harbor 401(k) Plan Now appeared first on Fast and Affordable 401k for growing businesses.

Everyone’s Doing It

A retirement plan is a benefit. You may think it’s not, because you’re being forced to offer it. But wages are beneficial too, and you are required to pay those as well. Regardless of whether you want to call retirement mandates benefits, the bottom line is that every business owner who meets the state’s requirements must offer a retirement plan. So, like wages, what is happening is that workers are shopping around for the best deal for them. How can you play (and win) this game?

Nearly half of all businesses in the U.S. are small businesses. As such, they are exempt from many of the rules that larger businesses must follow, the reasoning being that if these rules applied to small businesses, there wouldn’t be any, because the costs and the time associated with following the rules would be too onerous. The ability to open your own business and eventually become successful (and possibly even rich) is the concept that America was founded on. Never mind that you need to find a lender to start the business and that most fail within 10 years — everyone who starts one plans to be the exception.

You may have researched your field and your options carefully before starting down the path to becoming a sole proprietor. But there are always pitfalls along the way. Maybe you opened a coffee shop and the tenant in the big office building across the street pulled up stakes and moved across the border. Maybe you used to make jewel cases for CDs, and then they became obsolete. Maybe you started a tech, accounting or another kind of firm and now the state wants you to provide retirement plans to all your employees.

The last scenario is the best one, because state-mandated retirement plans are not exactly ruinous to small businesses. It’s not like you have to sponsor your own retirement plan for your employees — you merely have to ensure employees can access the state’s retirement plan. In most states with retirement mandates, this means automatically enrolling all your eligible employees in the plan (they are allowed to opt out).

Separating the Wheat from the Chaff

State-sponsored plans can affect how level the playing field is among small businesses that are in competition with each other. Let’s stick with the coffee shop example. Say there are three coffee shops downtown, and you own one. None of the shops offers benefits, and all pay about the same. Employees cycle through them, hoping one is better than another. Other companies in town that hire unskilled workers offer a retirement plan, and the best workers are drawn to these companies, leaving the coffee shop owners with the rest.

But now there is a state mandate for retirement plans. Employees can get them anywhere — they don’t need to seek out employers that offer them. Suddenly, you can better compete with these other employers. The quality of your workforce may improve. It would, however, theoretically improve equally with the other two coffee shops. How could you differentiate your shop?

State mandated retirement plans are much better than no plans, but as with government-run health care, the private sector can probably do better. State plans are the bare bones, the bottom of the barrel. But only companies with no plan are required to offer them. If you have your own retirement plan, you can turn your nose up at the state plan.

Get a Leg Up

You may not have fantasized about starting a retirement plan for your employees, but now may be the perfect time. The stumbling block for many small businesses has been the cost and the expense of starting a plan. But that’s why we founded 401GO — to help small businesses start retirement plans quickly and easily. While other, large financial companies take weeks or even months to get plans up and running, you can get your plan started with 401GO in as little as 15 minutes. And the costs are minimal. Think about the caliber of employees you can attract with your very own retirement plan.

And if we dare imagine a benefit even sweeter, you may want to offer some type of employer match as well. The thing about state-mandated plans is that they are IRAs that belong to the employee — thus, workers have no incentive to remain at the same company the way they do if there is a company match and a vesting schedule. Not only will potential employees find your company more attractive for having your own retirement plan and offering a company match, they will have more respect for you, your business and how you manage it. Your employees will view you in a less adversarial way, and look at you more as a benevolent leader.

A Few Do’s and Don’ts

If sponsoring your own retirement plan doesn’t sound feasible for you, brainstorm other ways you may be able to set yourself apart from the competition in order to attract better talent. Can you afford to pay higher wages? A flexible schedule is important to job satisfaction. Treating employees fairly and respectfully is always appreciated. If you operate a food establishment, allowing employees to eat and drink for free is probably a worthwhile offering, but if you don’t, FYI, few employees appreciate free pizza or coffee as much as a retirement plan or some cold, hard cash.

Think about what would work best for you, and don’t hesitate to contact 401GO for help and more information about sponsoring a retirement plan at your small business.

The post State Retirement Mandates and Hiring: Attracting Talent to Small Businesses appeared first on Fast and Affordable 401k for growing businesses.

That’s why we have laid out for you five ways you can reduce your payroll taxes legally. Think of these strategies along the lines of the hacks you might see on social media about how to peel garlic faster, how to get super glue off your hands or how to convert a Word doc to a pdf. Why struggle or suffer if you don’t have to?

1.       Find out which tax credits you’re eligible for.

If you’re thinking that finding out what tax credits you can take is a job in itself, you’re not wrong, and if you have an accountant or financial advisor, absolutely lean on them to perform this task for you. But it doesn’t hurt to be informed on the topic yourself, whether you have a professional on your side or not.

For instance, are you familiar with the Work Opportunity Tax Credit? This IRS program provides tax credits to employers who give jobs to certain segments of the population who may be marginalized. Examples include convicted felons, disabled people and veterans. This program has done a lot of good in communities across the U.S., giving former prisoners an acutely important second chance at life, and allowing individuals who may not be suited to skilled labor the opportunity to contribute to society through work such as collecting shopping carts, stocking retail items or other types of jobs they may be well-suited to, be it part time or full time. Employing such people is a win-win — you get a tax credit while helping someone earn money and feel better about themselves.

2.       Offer access to flexible spending accounts.

Employees can only participate in an FSA through their employer, so it is a crucially important benefit. But it’s not only the employees who benefit — it applies to employers as well.

Currently, the IRS allows for three types of FSAs — two for health care and one for dependent care. Employees may designate a certain amount of their pretax income to be funneled into a separate account to pay for uncovered expenses such as prescription medications, doctor visits, eyeglasses, dental care, caregiver expenses, summer camps and more. Employers that offer these programs at their business are eligible for reductions on the payroll taxes they must pay for workers who contribute to these accounts. Employers are exempt from paying Medicare and Social Security tax on every dollar that employees divert to their FSA. You may not get rich on this benefit, but every little bit helps, and when you offer these programs, you have the bonus of providing employees a valuable benefit (and hopefully their appreciation for doing so).

3.       Take a closer look at your employee classifications.

In recent years, the labor force has seen an uptick in the number of workers classified as independent contractors, rather than employees. Classifying workers as ICs can save employers a ton of money in taxes, benefits and administrative costs. Employees need to be trained, onboarded and (usually) provided a space in which to do their work. ICs often work from home and already have the skillset necessary to complete the work. Using ICs gives employers flexibility to pay workers only when they need work done, versus 40 hours per week.

Plus, they save tremendously in not paying benefits such as health insurance, vacation and sick days. Additionally, employers do not have to pay their 7.5% share of Medicare and Social Security tax — the ICs are responsible for paying these themselves. Sounds like a dream, right? Many employers thought so, and that’s how it turned into a nightmare for them.

Classifying workers as ICs comes with a list of requirements, and if your ICs don’t meet these requirements, you could be looking at fines into the hundreds of thousands of dollars. For example, if you want to classify a worker as an IC, you can’t require them to be on your premises during any pre-set hours. You also can’t pay them by the hour — they must be paid by the project. These are only two examples — classification rules are extensive.

So while you can save lots of money classifying workers as ICs legitimately, you can lose a lot of money by doing it nefariously. If you’re not sure how to classify your workers, get the advice of a professional.

4.       Offer retirement plans.

Offering retirement plans is a great way to attract top talent to your industry and business, but these plans don’t only benefit employees — they benefit employers too. For instance, employer matching contributions are tax deductible. Employees appreciate employer matching contributions, and they won’t cost you as much as you thought when you factor in the tax credit.

Additionally, you can get tax credits of up to 100% of your administrative costs for three years if you don’t already have a retirement plan in place. Because these costs can sometimes be higher than a small-business owner counted on (and the timeline for getting the plan up and running can be long), 401GO offers easy and low-cost startups for retirement plans for small businesses.

5.       Stay updated on changes to tax laws.

You can do this by subscribing to reliable small-business publications, joining your local chamber of commerce or working closely with a financial advisor or certified public accountant. Some small-business owners love staying up to date on important developments in their industry or the administration of their business, while others prefer to focus on day-to-day operations or creative brainstorming sessions. There’s no one right way. Whether you rely on yourself or someone else, make staying abreast of how tax laws affect your business a priority.

Protect Your Profits

While more money doesn’t necessarily lead to greater success or happiness, it can make it easier. And when you pay less in taxes, you have more cash on hand — money that can be used to reinvest in your business, reward loyal employees, fund a local youth sports team or pay for a well-deserved vacation. Count on 401GO for great advice about how to improve the bottom line at your small business.

The post 5 Ways SMBs Can Reduce Payroll Taxes appeared first on Fast and Affordable 401k for growing businesses.