Small Business 401k Plans Explained

If you’re trying to learn about 401(k) plans, you may feel overwhelmed by all the information and terms out there. Rest easy; it’s a lot less complicated than it seems. Here are the different types you might have heard about:

Traditional small business 401(k)

A small business 401(k) plan is basically the same as a large business 401(k): a plan that lets you take money from your pay (before paying taxes on it) to save for your retirement. No matter the size of the business, a 401(k) plan has the same benefits and the same maximum contributions. The difference is that retirement plans big businesses get complicated—and expensive.

Big business 401(k) plans are designed for businesses with hundreds or thousands of employees. Because they are more complex, they often require in-person enrollment meetings and special human resources training. Most 401(k) plans for large businesses also have high fees—including assets under management, or AUM fees. AUM fees are charged based on a percentage of the money in your account. That means that the more you save, the higher the fees.

The Ubiquity 401(k) plans detailed below are all small business 401(k) plans. They’re designed for small businesses and individuals who don’t have lots of time and budget to devote to managing a retirement plan. We eliminate all the jargon and offer straightforward, transparent monthly fees—and zero AUM fees—so you can jump in and start saving in minutes while contributing more towards your bottom line.

Roth 401(k)

The Roth 401(k) bridges the traditional 401(k) and Roth IRA’s best features, offering a dynamic retirement savings option for small business owners and their employees. Unlike the pre-tax contributions in a traditional 401(k), contributions to a Roth 401(k) are made with after-tax dollars. This means that while you forgo immediate tax deductions, you enjoy the perk of tax-free withdrawals during retirement – encompassing both your initial investments and the accumulated earnings. For this benefit, the account needs to be in place for at least 5 years, and distributions should commence when the account holder is 59½ or older, or in the case of disability or passing. Given the unpredictability of future tax landscapes, the Roth 401(k) offers a strategic hedge, positioning you and your employees for a financially sound retirement.

Safe Harbor 401(k)

The fairness principle is at the core of 401(k) plans – they must cater to everyone equitably, not just the higher-tier earners. However, sometimes, plans might not meet the annual fairness checks. That’s where the Safe Harbor 401(k) steps in. By selecting this structure, the business owner commits to specific contributions that vest to the employee immediately. This arrangement not only ensures fairness but allows high-earning individuals to contribute more to their 401(k), unrestricted by the contributions of their lower-earning peers. It’s an inclusive approach ensuring everyone maximizes their retirement savings potential.

New Comparability 401(k)

Standard profit-sharing has its advantages, but what if a business owner wishes to reward certain groups more? The New Comparability plan shines in this aspect. It allows owners to be generous with specific demographics, like seasoned or top-earning team members, without violating non-discrimination rules. For many small businesses, this design proves invaluable. It’s an avenue to appreciate and incentivize key players, all while providing a robust retirement framework for the entire team.

Sole Proprietor Plan

Tailored for the self-employed individual, the sole proprietor 401(k) — a.k.a solo(k) —  stands out in the realm of retirement savings. By donning both the employer and employee hats, one can channel more funds into retirement savings. It’s a unique arrangement, unclouded by corporate intricacies or the need for extensive consultations. With a transparent fee structure and the absence of concealed costs, it’s an attractive retirement route for those steering the ship alone.