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.

If you are just starting a 401(k) at your company, you may be wondering about vesting. How should you decide what type of vesting schedule to establish? Does it really matter? Although some people might not think so, we think it matters, and the schedule you settle on can affect many aspects of your business. In this post, we explain how your choices matter to your business today, and in the future.

What Is Vesting?

Even if you never heard of vesting as it relates to a 401(k), you likely heard of a vested interest. For example, if you are a worker at a company, you may have a vested interest in whether your company wins a particular contract, because that could mean continued work and more money for you. It’s similar to investment, meaning you have put your time, effort, or money into a situation that you hope pays off.

Vesting, as it relates to 401(k)s, refers to an employee’s entitlement to the funds in their 401(k). However, vesting only applies to company match funds; employees’ own contributions are always 100% theirs. The ones you make on their behalf become their property only under conditions that you as the employer are allowed to set.

Employer Contributions to 401(k)s

While employer contributions to 401(k)s are definitely looked upon favorably, they are by no means required. This means you can sponsor a 401(k) plan at your company for your employees but never make any contributions on their behalf. This isn’t quite as bad as it sounds. Sponsoring a 401(k) plan for your employees means they have access to a 401(k) that they otherwise would not have. While anyone can open an IRA as a means to start saving for retirement, this vehicle isn’t nearly as good as a 401(k), even a 401(k) with no company match. That’s because the maximum a worker can contribute to an IRA is $7,000, while the maximum they can contribute to a 401(k) is $23,000 (in 2024). This is a huge difference. A 401(k) can net an investor hundreds of thousands or even millions more during their lifetime than an IRA can.

Unfortunately, the only way a worker in the U.S. can get access to a 401(k) is through an employer. With almost all businesses in the U.S. being small businesses, problems arise when these companies can’t (or won’t) offer employees 401(k) plans. And the smaller the business, the more likely a company is not to offer a 401(k). Historically, the reason has been that starting a 401(k) is too expensive, and keeping it running is too laborious. 401GO’s mission is to provide small businesses with the opportunity to offer a 401(k) plan to employees at a minimal cost and with setup that takes only minutes instead of weeks.

The U.S. government has taken notice of the fact that many small businesses don’t offer 401(k)s, and in many states, providing access and automatic contributions to an IRA is mandatory. This is very nice, but you already know now what the limits of an IRA are.

Thus, the bottom line here is that you aren’t required to offer a match when you start a 401(k) at your company, and if you don’t, you will still be offering your employees a valuable benefit. But it won’t be as valuable as businesses that do offer a match.

Matching Contributions

When employers offer a match for employees’ 401(k) contributions, it’s often 50% up to 6%. That being said, you are in no way tied to this formula and can match any percentage you choose. It’s probably best not to make it too complicated, however, because you want employees to easily understand the benefit they get by working at your company.

For example, an employee earning $100,000 and putting 6% of their salary in their 401(k) at a company with a 50% match actually gets $103,000. If they contribute less than 6%, they are, in effect, foregoing free money from their employer. If that same employee works for a company that does not offer an employer match, they are effectively getting less compensation each year.

Vesting Schedules

For the most part, both employees and employers know how valuable an employer match is, and that’s why some employers create a vesting schedule. These employers use the vesting schedule as leverage to keep employees tethered to the company longer and discourage them from leaving to take a better offer.

There are two main types of vesting: cliff and gradual. With cliff vesting, the matching funds become employee property all at once on a specified date in the future, while with gradual vesting, the employee gets a larger percentage at certain preset intervals.

Commonly, vesting schedules are between three and five years. If we use the same example above of the employee who earns $100,000 and puts 6% of their salary in their 401(k) and gets a 50% employer match, in three years the employer will have contributed $9,000 to the employee’s account, and in five years $15,000.

Some employers choose to set a vesting schedule so that if the employee leaves the company before a certain time period, they forfeit the employer matching funds.

Vesting: Yea or Nay?

We titled this blog “How to Establish a Vesting Schedule for Your Company’s 401(k),” but it’s less about the percentages and more about what you should consider when you are thinking about a vesting schedule.

Simply having a vesting schedule, while not uncommon, presents the potential to be viewed by employees as adversarial. It’s a way to encourage them into staying at your company when they might otherwise choose to leave, and it can lead to hard feelings. You can find all kinds of statistics online about how many companies have vesting schedules and how many don’t, but we can say it’s roughly about half and half.

Factors you may want to consider before deciding whether to establish a vesting schedule include:

•     Whether your competitors have vesting schedules
•     How long your employees typically stay at your company
•     Whether your company culture is generally friendly and welcoming, or more strict and authoritarian

If none of your competitors has a vesting schedule and you do, it could make you look cheap, apprehensive or mistrustful. If you have high employee turnover, a vesting schedule could look like a way to make it easier to mistreat employees. If you run your business like it’s a family and you introduce a vesting schedule, you run the risk of alienating the loyal employees you already have. On the other hand, if you make it clear that the employee-employer relationship is strictly business, you may have fewer issues with introducing a vesting schedule.

Whatever you choose, know that if it doesn’t seem to be working out for you, you can try changing it down the road to see if things improve. Just make sure to give each way enough time to see how it works for your company.

The post How to Establish a Vesting Schedule for Your Company’s 401(k) appeared first on Fast and Affordable 401k for growing businesses.

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.

Let’s discuss some strategies for making the most of this essential retirement savings tool on your path to early retirement.

Establish a 401(k) Plan

As a small business owner, you can set up a 401(k) plan for yourself and your employees fairly simply. Our simplified setup process makes it possible to create a new plan in minutes, without having to make a lot of difficult decisions. These plans come with plenty of benefits, both for employers and for employees.

To determine the best plan type for your circumstances, consult with a financial advisor or talk to one of our plan consultants.

Maximize Your Contributions

As a business owner, you can contribute to your 401(k) account as both an employee and an employer. Take full advantage of the contribution limits set by the IRS. As of 2023, the employee contribution limit is $22,500, and the total combined contribution limit (employee and employer) is $66,000 for individuals under 50 years old.

By maximizing your contributions, you can benefit from tax advantages, compound growth, and potentially accumulate a significant retirement nest egg. Keep in mind that contribution limits are subject to change, so it’s essential to stay updated on the latest IRS guidelines.

Consulting with a financial advisor or retirement plan specialist can help you determine the most effective contribution strategy based on your business’s profitability, your personal financial goals, and the specific features of your 401(k) plan. They can guide you through the contribution limits, plan design options, and any additional considerations for optimizing your retirement savings as a business owner.

Consider Profit Sharing

If your business is profitable, you can use profit-sharing contributions to maximize your retirement savings. Profit-sharing contributions allow business owners to allocate a percentage of the company’s profits to their employees’ retirement accounts, including their own. This contribution is made as an employer contribution and is subject to certain limits and guidelines set by the IRS.

Implementing profit-sharing contributions can be a win-win scenario for both the business owner and employees. It allows the owner to maximize their retirement savings while providing an additional retirement benefit to employees, which can help attract and retain talented individuals.

Keep in mind that profit-sharing contributions are discretionary, meaning they can vary from year to year based on business performance and profitability. It’s important to establish a consistent approach and communicate any changes to your employees.

Explore Roth 401(k) Option

An important consideration when using a 401(k) to retire early is the tradeoffs between pre-tax (Traditional) and post-tax (Roth) contributions. On the one hand, pre-tax contributions can be a powerful way for high-earning business owners to reduce their tax liability today and benefit from potentially lower tax rates during retirement. But, post-tax or Roth contributions can be valuable for owners that are interested in locking in a low tax rate today and receiving tax-free withdrawals during retirement.

Roth 401(k) accounts are not subject to required minimum distributions (RMDs) during the account owner’s lifetime. This provides flexibility in managing your retirement income and allows you to potentially preserve the Roth funds for future generations.

Determining whether a Roth 401(k) is suitable for your retirement strategy involves considering factors such as your current and expected future tax bracket, your time horizon, and your overall financial goals.

Diversify Your Investments

Ensure your 401(k) investments are diversified to manage risk and potentially increase returns. Consider allocating your funds across different asset classes, such as stocks, bonds, and real estate investment trusts (REITs), based on your risk tolerance and retirement goals. 

Regularly review and rebalance your portfolio to maintain your desired asset allocation.

Create an Early Withdrawal Strategy

Depending on how early you want to retire, you may face some complications when attempting to access your retirement funds. At a high level, business owners won’t be able to withdraw funds from their 401(k) penalty-free until age 59.5. 

That said, there are some exceptions and workarounds to this issue. 

1. The Rule of 72(t)

For example, Rule 72(t), also known as Substantially Equal Periodic Payments, is one way that business owners can access retirement funds early penalty-free. This option allows you to create a series of payments from your retirement plan to access funds early. But, there are very specific rules and guidelines you must meet to use this strategy,

According to the IRS, Under Section 72(t)(2)(A)(iv), if payments are made as a series of substantially equal periodic payments (called “SoSEPP”), the 10% additional tax may not apply.

2. The Rule of 55

Next up, the Rule of 55 states that you can access your retirement funds penalty free if you retire at or after the age of 55. The rule states that employees must separate from service with their employer. So, for a business owner, that would mean fully stepping away from your business. 

3. Roth 401(k) Workaround

Lastly, business owners have some unique options with Roth 401(k)s during early retirement. 

While there are penalties for early distributions from a Roth 401(k), there is a workaround to access your funds early without penalty. If you retire early, you can roll over your Roth 401(k) to a Roth IRA. And importantly, the full amount of your rollover is considered to be a “contribution” for withdrawal purposes. And this is important because, with a Roth IRA, you can always withdraw your contributions tax and penalty-free, regardless of your age. 

So, assuming you need to access funds before 59.5, you could do a direct rollover from your Roth 401(k) to your Roth IRA, then access the full amount of the rollover penalty-free since it is considered a “contribution.” 
However, there are some additional considerations with this strategy that owners should understand. Most importantly, Roth IRAs are subject to a 5-year rule. This means that the Roth IRA has to have been open for 5 years before you can withdraw earnings penalty-free. Keep this in mind when using this strategy, and consider the possibility of working with a qualified tax or investment professional to avoid any issues.

Seek Professional Advice

Managing a 401(k) and planning for early retirement can be complex. Consider consulting with a qualified financial advisor who specializes in retirement planning and has experience working with business owners. They can help you optimize your retirement savings strategy and navigate the regulations and tax implications associated with 401(k) plans.

Remember that retirement planning is a long-term endeavor, and early retirement requires careful financial management and saving. Start early, be disciplined with your contributions, and regularly review and adjust your retirement plan as needed.

The post How Business Owners Can Use a 401(k) To Retire Early appeared first on Fast and Affordable 401k for growing businesses.

Tax Benefits for Employers

When an employer contributes to their employees’ 401(k) accounts, they can deduct the contributions as a business expense on their tax returns. This reduces the amount of taxable income for the business, resulting in significant tax savings.

In addition, if the employer is a small business, they may be eligible for tax credits for starting a new 401(k) plan. These tax benefits can help offset the costs of offering a 401(k) plan and make it more affordable for the business.

Attract and Retain Top Talent

Offering a 401(k) plan can make a business more attractive to potential hires, particularly those who are looking for long-term career prospects. Employees consider retirement benefits to be a significant factor in their employment decisions, and a competitive 401(k) plan can help a business stand out from its competitors.

In addition, offering a 401(k) plan can help reduce employee turnover, as employees are more likely to stay with a company that offers competitive retirement benefits, and more likely to leave one that doesn’t.

Reduce Payroll Taxes

When employees contribute to their 401(k) accounts, their taxable income is reduced, which means that the employer must pay less in payroll taxes. This can result in significant savings for businesses, particularly for those with high-earning employees. For example, if an employee earns $100,000 per year and contributes $10,000 to their 401(k) account, the employer only has to pay payroll taxes on $90,000 of the employee’s income.

Increase Employee Productivity

Employees who have a secure retirement plan are likely to be more focused and less stressed about their financial future. This can result in higher levels of engagement and productivity in the workplace, which can ultimately benefit the employer. Offering a 401(k) plan can help boost employee morale, as employees feel valued and appreciated by their employer.

Lower Healthcare Costs

Research has shown that employees who participate in a 401(k) plan tend to be healthier and require fewer medical interventions. One reason is that employees who have a 401(k) plan are more likely to take care of their health, as they have a long-term financial goal of retirement.

Another is that workers that have their finances in order experience lower amounts of stress and anxiety. This can result in lower healthcare costs for employers, which can be a significant cost savings.

Share Costs with Employees

Unlike a pension or other defined benefit (DB) plan, when employees contribute to their 401(k) accounts, they are taking on some of the financial responsibility for their retirement. This means that employers can share the cost of retirement benefits with their employees, which can be a significant cost savings over time. Employees who contribute to their 401(k) accounts are more likely to stay with the company long-term, which can help reduce recruitment and training costs for the employer.

401GO Makes it Even Easier

Modern fintech providers have taken enormous steps to reduce up front costs for small businesses. Not only is pricing affordable and transparent, but the built-in automation and service bundling create significant improvements in efficiency compared to older, legacy solutions. This means you won’t need substantial inputs of time or money in order to offer a high-quality benefit to your employees.

And, while there are costs associated with offering a 401(k) plan, the benefits can far outweigh these costs over time.

The post How Offering a 401(k) Saves Employers Money appeared first on Fast and Affordable 401k for growing businesses.

Generally, employers and employees set up contributions through payroll, and everything happens automatically, and on time. However, certain situations can result in late contributions and missed deadlines. Fortunately, there are steps that employers can take to limit the impact of these missed deadlines and fix the situation. 

And even though it may seem like a lot to keep track of, the benefits of a 401(k) plan can significantly outweigh the costs or hassles involved with key deadlines. 

t’s time to get familiar with 401(k) deadlines, employers! If contributions are late or incorrect, it can mean costly penalties and even plan disqualification. To help you make sure your plans stay up-to-date, here’s the 411 on all the key dates, plus tips for avoiding unwanted side effects of missed deadlines.

Deadline #1: Employee Contributions

Employee contributions to a 401(k) can take many forms, including Roth contributions, pre-tax salary deferrals, voluntary after-tax contributions, and loan repayments. All employee contributions must adhere to the same deadline requirements despite the various types.

Employee contributions should be deposited by the earliest date they can be separated from general assets, usually within 15 business days of the month they were withheld. However, if a business has 100 participants or fewer, they are subject to a safe harbor rule which requires them to deposit employee contributions within seven business days to avoid penalties.

If employee contributions are deposited late, employers must take measures to rectify the situation, including contributing additional funds to make up for lost earnings due to the delay. This can be accomplished through the Department of Labor’s Voluntary Fiduciary Correction Program (VFCP) or self-correction.

Self-correcting may be a more convenient option for small businesses but it comes with added costs. First, the IRS levies a 15% excise tax on the lost earnings, which can vary depending on how late the contribution was made. This tax must be paid using IRS Form 5330.

In addition, if you decide to self-correct rather than use the VFCP, you must be aware of the risks involved. Upon completion, you will not receive a “no-action” letter from the DOL, and the issue may be investigated in a future audit. Lost earnings must also be estimated on your own, either based on the plan’s actual return rate or the IRS underpayment rate, and reported on Form 5500 to alert the DOL and create the potential for an audit.

Ultimately, late deposits can happen, but it’s essential to understand the deadlines and fix the situation as soon as possible. This can help you avoid significant penalties and reduce the potential of an audit. 

Deadline #2: Employer Contributions

Employer-matching or profit-sharing contributions must adhere to two deadlines: one for deductibility and the other for annual additions. These deadlines vary in accordance with your business’s tax status and the particular contribution type.

The deadline for deducting employer contributions to a 401(k) plan for the corresponding year is the same as the federal tax return (including extensions). However, this deadline will vary depending on your business’s tax status, so confirm your business’s deadline using the IRS website.

To deduct employer contributions for the relevant tax year, you must deposit them before your filing deadline (including any extensions).

Next, the IRS considers all contributions allocated to a participant’s 401(k) account each year to be “annual additions.” These annual additions are limited by IRS code 415 each year (for most plans, this is the same as the plan year.) The 415 limit includes all employer and employee contributions as well as any forfeitures that have been allocated to the plan participant. 

Because annual additions include various contribution types, deadlines vary by contribution type. Check with your 401(k) provider to understand the deadlines for each contribution type.

In order to fix late deposits, one must take advantage of the IRS’s Employee Plan Compliance Resolution System (EPCRS). This system offers three different means of correcting a mistake: the Self-Correction Program (SCP), the Voluntary Correction Program (VCP) and the Audit Closing Agreement Program (Audit Cap). Depending on which program is used, you must pay a fee for it and provide lost earnings for the period in which your deposit was late. Failure to comply can result in costly penalties or even plan disqualification.

Automated Platforms Save Hassles

At 401GO, we provide small business 401(k) plans powered by an easy-to-use, automated platform. Our streamlined approach allows you to get up and running in just minutes with simple and affordable pricing to fit your unique business. And when you’re working with us, don’t worry, we’ll keep track of the key deadlines and send reminders if deadlines are missed.

Contact us to discover if 401GO can help you.

The post 401(k) Contribution Deadlines You Need To Know appeared first on Fast and Affordable 401k for growing businesses.

Retirement plan advisors support plan sponsors in many of these decisions. They’re also a key link between plan sponsors and third-party administrators (TPAs) and other plan providers, providers who are necessary to the smooth running of the plan.

Background

Retirement plan advisors are not the same as personal financial advisors. A retirement plan advisor specializes in working with qualified retirement plans such as 401(k)s. They help answer employer questions and guide them to the right type of plan for them and their employees. They:

• Educate and inform employers about:
  • How 401(k) plans work
  • Why they should adopt a 401(k) plan
  • Understanding the complexities of a 401(k) plan 
  • Service providers they will need to help them with their plan
• Consult with plan sponsors on the best design features of a 401(k) so they can maximize their tax savings and so can their employees
• Help in developing an Investment Policy Statement specifying the sponsor’s investment objectives and goals and the strategies for meeting those goals
• Add value to the sponsor by helping educate participants about the plan to:
  • Improve employee outcomes
  • Improve employee satisfaction with the plan

Advisors also often act as an investment manager in selecting and watching the plan’s investments and even serve as a 3(21) or 3(38) fiduciary to the plan. 

Employers value an advisor who can be their 401(k) plan partner.

So do TPAs.

TPA – an Advisor’s Best Friend

TPAs and advisors are natural best friends. They have complimentary skills and a shared vision of service to their employer clients and employees. They work together to help those clients achieve their company’s goals and their and their employees’ savings goals. A good TPA can also help the advisor’s business succeed.

TPAs specialize in retirement plan design and administration and can help advisors in these areas. Every client is different, which means some customization in plan design is necessary. Administration is an important part of having a 401(k) plan, albeit maybe not the most glamorous part. A TPA helps the plan sponsor with plan reporting, compliance, and plan documents. A TPA handles day-to-day plan operations and administration with such items as employee eligibility, calculating matching contributions, and preparing the Form 5500.

Advisors, TPAs, and Technology

Over 50 million Americans don’t have access to a retirement plan, most of them working for a small business (one with fewer than 100 employees) that doesn’t sponsor a 401(k) plan due to complexity and cost factors. There are more than 30 million small businesses in the U.S., but only a total of 600,000 401(k) plans. The retirement industry is working to close that gap, with many TPAs and recordkeepers using technology to bring down the cost of a 401(k) plan.

The use of technology has accelerated since the pandemic and has changed the way a lot of companies including retirement ones, work. And this includes 85% of advisors, who, according to Vestwell’s “2021 Retirement Industry Trends Report,” plan to place a greater emphasis on technology to run their business than they did prior to the pandemic. 

That’s good, because advisors who are working or interested in working with small businesses need to find low-cost efficient 401(k) solutions with a good fintech TPA. But to be a good partner with a fintech TPA, they need to be comfortable with a high level of technology.

For technology drives many of the tools needed to make low-cost solutions possible, of which automation is a key part. Fintech TPAs use advanced technology to automate many 401(k) functions which are essential to lowering the costs.

Fintech TPAs to the Rescue

Small business plan sponsors are looking for advisors to help guide them with investment menus and plan design, and to help employee engagement and greater financial well-being – all at a reasonable cost. 

This is where a good retirement plan advisor can shine, especially if they partner with an excellent fintech TPA who provides bundled services combined with great technology and automation.

Just as Alaska Klondike Gold Rush prospectors solved the challenge of getting into the interior of Alaska in wintertime by ascending Canada’s Chilkoot Pass, a good fintech 401(k) company solves many of the challenges that deter small businesses from adopting a 401(k) plan. They do it through advanced technology and automation, areas that have exploded since the COVID-19 pandemic hit in 2020.

• Cost. Fintech companies often have substantially lower fees than conglomerates. And they’re joining with more established recordkeeping and administration companies who work with the small business 401(k) market to present ever lower-cost solutions for their plans. Modernization and automation can help plan sponsors speed up processes, reduce turnaround time, and improve their Return on Investment (ROI).
• Staff assistance. Administrative help comes in the form of improvements in payroll integration and connectivity; automated benefits reconciliation; greater ease with non-discrimination testing and other compliance tasks through automation; and help with plan designs which are often less complicated than those for large companies.
• Administrative complexity. Many of the newer fintech companies use their own proprietary software technology for their recordkeeping purposes, and some take on 3(16), 3(21), or even 3(38) fiduciary responsibilities typically borne by the plan sponsor, TPA, or third-party fiduciary provider. In addition, their systems can automate repetitive tasks, free up administrative staff time, set up alerts and reminders for compliance deadlines, and build dashboards for participants to use for greater access to their accounts.

This makes a lot of sense. But who to choose?

401GO Fintech Solutions

401GO is a fintech company that was created to offer improved access to work-sponsored retirement plans by helping small businesses implement 401(k) plans for their employees.

They built a fully integrated and intuitive proprietary system that does the work of 3-4 providers and saves employers money, time, and hassle through efficiency and automation. And in so doing, improve outcomes for workers who are often ignored or underserved by traditional providers.

401GO believes in being an extension of an advisor, not their replacement. So, they have established a special partnership program just for advisors. Once an advisor becomes a partner, they have access to a special portal from which they can access their clients’ information, run reports, and even set up a plan on a client’s behalf.

Interested? Team up with 401GO and discover how fintech solutions are a boon for your business.

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