Choosing the right Third-Party Administrator (TPA) to handle this filing on your behalf is worth every penny. A good TPA will ensure the form is completed according to requirements, to help you avoid penalty costs and additional work with the IRS, and they will ensure that administrative tasks are done according to the requirements of the plan.

What is Form 5500?

All companies that offer a 401(k) plan are required to file this form with the IRS each year. It serves as both a disclosure document for plan participants and as a compliance tool for the Department of Labor and the Internal Revenue Service. The form requires detailed financial and operational information about the 401(k) plan, including plan assets, participant counts, and adherence to applicable laws and regulations.

How a TPA Supports You

A TPA plays a vital role in managing the administrative aspects of compliant 401(k) plans. When it comes to form 5500, a knowledgeable TPA will ensure that the filing is done accurately and prior to the deadlines, which are strict. This will prevent unnecessary fines and regulatory inspections. Compliance regulations by ERISA and the IRS change frequently and oftentimes unknowingly by business owners, so having a TPA that is knowledgeable and current on these changes will ensure the filing is compliant. 

The main elements of form 5500 is the data that is required to represent the plan year and participation within the 401(k) plan. The collection of the data and financial reporting requires gathering and organizing of this information. TPAs are equipped to manage this so it does not have to be a burden on the business owner. If an audit does arise, having a TPA that can aggregate all plan data in an efficient and accurate manner will assist the company to navigate the process with minimal disruption.  

DIY Form Filing

When you choose to file the form yourself, or have a CPA help you, rather than utilizing a TPA, the lack of expertise could put you at risk of serious consequences. Compliance requirements are very stringent, and late or inaccurate filings could result in steep fines and penalties. Penalties can add up very quickly and can cost companies thousands of dollars. There’s also a possibility of audits and legal complications, which are hassles no business needs. 

Even without errors, the complexities of form 5500 take time and resources to complete accurately and can result in significant time away from your business.

Work with the Best

To make sure you choose the right TPA for your company’s needs, ask these questions: 

• Do you prepare and file form 5500 for your clients? 
• Do you sign the form or is that the responsibility of the business owner? 

Having a clear understanding of your role up front will help ensure all tasks are completed.  Nobody wants to play a finger pointing game with their CPA or recordkeeper about who was supposed to file it and did not. TPAs are the experts in this area. They have technology at their disposal to collect and report the data in a streamlined fashion. The TPA will provide support based and necessary guidance so the plan remains in compliance on all fronts. Hiring a TPA that handles all of the aspects of administration for your plan will reduce the risk of compliance issues arising. 

Making the decision to leverage a strong TPA like 401GO to file the company’s form 5500 is not just a matter of convenience—it’s a critical step toward ensuring compliance, reducing risks, and maintaining an appropriately managed 401(k) plan. By working with a trusted TPA, businesses can stay focused on what they do best while the TPA focuses on 401(k) administration and compliance.

The post 401(k) Compliance: Why a TPA is Essential for Form 5500 Accuracy appeared first on Fast and Affordable 401k for growing businesses.

Many business owners — especially small business owners — hoping to provide a retirement savings benefit for their employees begin that journey by offering a SIMPLE IRA, because they are easy to set up and maintain. But as time passes, companies often outgrow their SIMPLE IRA and seek to replace it with something more robust, such as a 401(k) plan. 

SECURE Act Makes It Easier

SECURE Act 2.0 rolled out many new ways to enhance retirement savings for employees and support employers in growing towards retirement for their company. New provisions allow employees to access and grow their assets in a more diverse way. One of the more helpful changes to come from this legislation is that SIMPLE IRA’s are now able to transition to Safe Harbor 401(k) plans mid-year rather than at year end. 

This can have a huge impact, since many business owners want to save more money as the plan year progresses and they have a better forecast on the company’s earnings. 401(k) plans have the big advantage of allowing larger contributions. Additionally, they come with more flexibility for employer contributions into the plan and additional features such as loans, Roth contributions and many more. 

A SIMPLE IRA to 401(k) conversion can be a smooth one, if advisors understand the necessary details.

Detail 1: Safe Harbor Requirement

The new 401(k) plan must be a Safe Harbor plan if the company is making the change at any time other than the start of the plan year, and the plan must be a matching or a QACA plan. Most small companies prefer Safe Harbor plans, because it allows them to bypass annual required noncompliance testing, saving them money and hassle. 

Detail 2: Employee Notification

Employers are required to provide a notice of the termination of the SIMPLE IRA and the beginning of the Safe Harbor 401(k) plan. It’s important that there is no loss of contribution opportunities by the employees, so the SIMPLE should end no more than one day prior to the 401(k) plan begins. 

Employees should receive a 30-day notice of transition. It is good practice for the company to send out a notice 30 days prior to the 401(k) plan going live, but many providers will send out a Safe Harbor notice for the new plan which can suffice.

Detail 3: Prorated Contribution Limits

Since contribution limits vary between the two plan types, contribution limits will necessarily be prorated. It’s important that the company keep track of these amounts in year one so that over contributing does not become an issue. SIMPLE IRA assets are not required to rollover to the 401(k) plan so it is difficult for the 401(k) provider to know how much each participant has contributed prior to the 401(k) establishment. 

The calculator method is as follows:

• (number of days in the SIMPLE / 365 days) x $16,000 = prorated amount for the SIMPLE
• (number of days in the 401(k) / 365 days in the year) x $23,000 = prorated amount in the 401(k) plan
• Prorated amount in the SIMPLE + prorated amount in the 401(k) plan = total contribution amount for the transition year. 

Advisors can help their clients by tracking these prorated amounts and ensuring both plans are in compliance.

Detail 4: SIMPLE IRA Closing

The SIMPLE IRA plan is required to end and can not transfer or merge into the 401(k) plan. The new plan will start and receive contributions, while the old SIMPLE plan will close and no longer receive any funds.

Detail 5: Waiver for 2-Year Rule

Contributions to a SIMPLE IRA are required to stay in the plan for a minimum of 2 years from the first contribution date before transferring elsewhere. SECURE Act 2.0 now makes it possible for employees to roll their IRA assets to the new 401(k) plan without waiting the 2 years.

A Good Plan for Employees

Transitioning from a SIMPLE IRA to a 401(k) plan will result in long term benefits for the employee and employer alike. By taking advantage of this new option, employees will have a robust retirement option for savings and the employer will have a more appealing benefit for future and current employees.  

401GO offers a wide range of 401(k) plan designs at an affordable price, and our conversion team is on hand to help you make a smooth transition from a SIMPLE IRA to a new Safe Harbor 401(k) plan. 

The post SIMPLE IRA to 401(k) Conversion Can Be Done Anytime appeared first on Fast and Affordable 401k for growing businesses.

1.       What does retirement plan success mean to you?

No one wants to lose money, and certainly no one expects to, even though that is a definite possibility in the short term. Most retirement accounts grow 7%-10% per year — do your clients know this, and is this what they’re expecting?

Feel them out on this, and see what their definition of success is. Individual investors will see differing results, depending on how they allocate their funds and what level of risk they have taken, and it’s important for them to fully understand the choices they’re making.

Once you know what your clients expect, you can discuss with them ways of aligning their plan goals with their vision so they can meet their objectives and achieve the outcomes they expect.

2.       Are you getting all the tax breaks you deserve out of your retirement plan?

Getting a tax break isn’t the only reason small-business owners decide to sponsor a 401(k) plan, but it’s probably in the top three. So helping your clients to maximize their tax deductions will make their plan more efficient, and more profitable.

Whether they decide to sponsor a 401(k) plan, offer the opportunity to open an IRA or the Roth versions of either of these determines whether employees make contributions to their retirement plan before taxes or after. But money the employer spends on retirement benefits is tax deductible regardless. Remind your clients that any contributions they make to their employees’ retirement funds only helps their bottom line. Additionally, because these contributions are not subject to payroll taxes, and because the money just grows over time, it’s one of the cheapest — and most valuable — ways to compensate employees.

Sometimes it’s hard for small-business owners to reach that tipping point where they finally decide to get their plan up and running, but you may be able to motivate them by explaining to them how they will benefit with substantial tax credits simply for starting up their plan. Don’t overlook any strategies to maximize tax breaks for your clients.

3.       What irks you the most about your retirement savings plan?

When you talk to your clients about their pain points related to their retirement savings plan, expect to hear about a lack of support and lots of wasted time on housekeeping matters and paperwork. When potential plan sponsors read about these types of headaches online, it can deter them from moving ahead with their idea to start a retirement plan at their business.

401GO’s main objective is to help small businesses get around the expense and complications that come with sponsoring a 401(k) plan, but with this streamlined simplicity also comes the type and level of responsivity that no one will ever get from the likes of Charles Schwab. Although we work directly with small business owners, we also work with financial advisors. We want you to come to us when you’re helping your clients start up their new retirement plans. We even match financial advisors to business owners looking for help because we know plans perform 15% better when a financial advisor is involved.

Other common complaints from plan sponsors include unnecessary complications — an issue you’ll never have at 401GO — and errors. No one can bat a thousand every day, but we come close. And what’s even more important is when a mistake is made, we’re on it immediately, working until it’s fixed.

Regardless of what your clients’ complaints are about their plan or their plan administrator, you can’t fix them if you don’t know about them, so don’t skip over this critical step.

4.       When can you meet to review your retirement plan’s progress?

Too often, a retirement plan becomes set it and forget it. We actually advocate for that on our site, because we know a lot of small-business owners don’t want to put the time and energy into a retirement plan since it would end up taking their attention away from their business. But financial advisors can provide clients a crucial edge that those who don’t benefit from your services can’t get.

And while we provide a set-it-and-forget-it service, we also provide valuable tools to financial advisors and others who want to use them, including extensive reports on contribution levels, earnings and losses and innumerable other important facts that should be considered for discussion at quarterly or annual reviews. We provide dashboards that allow you to monitor the progress of your clients’ plans, and you can compare the plans you manage, such as the size and health of each. You can even access individual participant accounts.

Such meetings are great for keeping your clients informed, but they’re also useful for seeing where changes might need to be made to get your client’s plan more in line with their goals and expectations.

More Knowledge, Greater Success

The above questions are just a sampling of how you can learn more from your clients in order to serve them better — and the better service you provide, the happier they are and the more clients you can expect to come knocking at your door, trying to find out how to get some of what your other clients already have.

To learn more about how you can serve your clients through a partnership with 401GO, contact us today.

The post 4 Key Questions Retirement Plan Advisors Should Ask Small-Business Owners appeared first on Fast and Affordable 401k for growing businesses.

Today, we want to help you with the decision about whether to include a financial advisor in your small-business 401(k) plan by going over some of the pros and cons.

Pros

1.       It can provide a valuable source for trusted guidance

One of the main reasons SMBs — or any company or individual — turns to a financial advisor for help is because they are not qualified to make whatever decisions lay ahead of them on their own, and they prefer to turn the job over to someone with the knowhow and confidence to do it. Your financial advisor can help you make initial plan design decisions, to best benefit both owners and employees, and they can further advise your employees about their individual investment options. Having an expert onboard who understands the financial world can give you needed reassurance about your choices.

Your employees, in turn, will feel much more secure investing in the 401(k) plan you sponsor, and thus will be more likely to participate fully in it. And the more participants you have, the more you and your highly compensated employees can contribute to your own accounts. 

Additionally, your employees will appreciate your dedication to their secure retirement and repay you with the loyalty and allegiance you want in a workforce.

2.       It can save money

Later in this article, we mention how hiring a financial advisor costs money, but doing so also helps you save money in a variety of ways. 

Besides offering astute investment advice to you and your employees and saving you from having to pay fines or penalties due to noncompliance with federal regulations, financial advisors can also regularly monitor and review the performance of the 401(k) plan’s investment options. They can analyze investment returns, evaluate fund fees, and make adjustments as needed to optimize the plan’s performance. This proactive approach helps ensure that the plan remains competitive and aligned with participants’ retirement goals.

3.        It can save time

Managing a 401(k) plan can involve administrative tasks, such as processing contributions, tracking eligibility and addressing participant inquiries (although 401GO makes it easy for SMBs by automating most of these tasks through your HR service provider.) 

Financial advisors can collaborate with plan administrators or third-party administrators to streamline these processes, allowing SMB owners to focus on core business operations.

4.       It alleviates compliance worries

Although 401GO makes it easy to get your 401(k) program up and running in as little as 15 minutes, oftentimes down the road an SMB must undertake tasks to ensure the company is in compliance with federal regulations governing 401(k)s. This can include scheduling audits, completing paperwork and filing forms. 

If this isn’t a responsibility you feel qualified — or interested — in taking on, your best bet is to work with an experienced financial advisor. Financial advisors can help navigate these complexities because they stay updated on legislative changes, ensuring the plan remains in compliance. They can assist with required reporting, documentation and adherence to fiduciary responsibilities.

5.       It can be a prized perk

You can have your financial advisor go above and beyond, conducting employee education sessions, providing retirement planning resources and addressing individual questions or concerns. This personalized support helps employees understand their retirement options and make sound financial decisions, and they will no doubt appreciate your efforts.

6. It improves outcomes

Importantly, plans tend to have better outcomes, both for employers and for individual participants, when a financial advisor is connected. We estimate that advisor-led plans perform an average of 15% better, which can make a substantial difference for employees’ retirement plans. 

Cons

1.       It costs money

As a business owner, you probably know it takes money to make money, so the fact that something costs money doesn’t necessarily make it a liability, but nonetheless, the amount — and whether you can afford to spend it — needs to be considered.

2.       It takes time and effort

Another tenet of owning a business is that time is money, and the more time you spend finding the right financial advisor for you, the less time you have to spend growing your business. You may be able to neutralize this con by delegating the job of choosing a financial advisor to one of your employees, or another trusted individual.

401GO offers a partner pairing service, where we can connect you with one of our trusted financial advisor partners in your local area. Just ask!

3.       It’s a risk

The risk you take in entrusting your company’s 401(k) decisions to a third party that you probably don’t know very well is real. The decisions they make might not work out for you and your employees as well as you’d hoped. 

However, you can mitigate this risk somewhat by doing your homework before selecting your financial advisor. And remember that no investment decisions are foolproof, and even if some of your investments don’t do well right away, there’s no evidence that you would have come out any better if you’d made the decisions on your own, or if you’d used a different financial advisor. 

Some of your fears can be assuaged by understanding that fiduciary advisors are bound to act in the best interests of plan participants, providing guidance on selecting and monitoring investment options, managing plan fees, and addressing any conflicts of interest.

Is a Financial Advisor Worth the Investment?

The bottom line is that, like when you purchase any other service, you have to decide how much you think you need it and how much it is worth to you. A financial advisor can provide risk management and long-term savings strategies, potentially improving retirement outcomes for you and your employees. But if providing company matches to your employees’ accounts is already a bit of a stretch, this might not be the right time to hire a financial advisor. 

There’s nothing to stop you from making a change down the road and adding the service into your plan sponsorship. And in the meantime, you may want to take advantage of 401GO’s automated tools that offer some financial services.

The post Should You Include a Financial Advisor in Your Small Business 401(k) Plan? appeared first on Fast and Affordable 401k for growing businesses.