Your Complete Guide to 401k Plans for Small Businesses
Think that 401k plans are just for large businesses with a budget to match? Think again.
Every day, Ubiquity Retirement + Savings™ helps small and startup companies and their employees reap the rewards of tax-deferred retirement savings—without the complexity, and without the big price tag.
With a small business 401k plan, you (and your employees, if you have them) can save for retirement while lowering your taxable income. Contributions you and your employees make to a 401k plan are contributed on a pre-tax basis. In the short term, that translates to a smaller tax bite on your annual salary. In the long run, it means extra security as your investments grow tax-free until you’re ready to retire.
Thinking about starting a 401k plan for yourself or your small company? Read on to get the facts from this complete guide to 401k plans made easy.
We all have goals for how we’d like to spend our retirement. Maybe you’d like to travel the world. Maybe you’d like to have something to leave for your loved ones. Maybe you just want to make sure you can provide for yourself and your family after you retire.
Whatever your goals, saving in a 401k plan is one of the best ways to achieve them. By setting aside relatively small amounts from your pay today, and letting your savings grow through your working years, you can make sure you have income when you stop working. Get started saving now, so you can have the freedom to choose how you want to live when you retire.
401k plans and IRAs are both great ways to save for your retirement and lower your taxes. There are two big differences between a 401k and IRA – with an IRA, you have to set it up yourself, and the amount that you can save pre-tax is a third of what you can save in a 401k. 401k plans are established by an employer, including an owner-only/sole proprietor business. They also allow employers to contribute to their employees’ retirement savings, up to 25% of the employee’s compensation.
401k plans have higher contribution limits for you (and your employees, if you have them). Contribute up to $19,000 for 2019, plus up to $6,000 in “catch up” contributions if you’re 50 or older. With an IRA, the 2019 maximum contribution is $6,000, plus $1,000 in catch-up contributions if you’re 50 or older.
You don’t actually have to choose between a 401k and an IRA to save for your retirement—you can contribute to both – but there are rules to do so.
If you’re trying to learn about 401k 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 401k plan types you might have heard about:
A small business 401k plan is basically the same as a large business 401k: 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 401k plan has the same benefits and the same maximum contributions. The difference is that 401k plans for big businesses get complicated—and expensive.
Big business 401k 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 401k plans for large businesses also have high fees—including “assets under management,” or AUM fees, which charge based on a percentage of the money in your account. That means that the more you save, the higher the fees.
The Ubiquity 401k plans detailed below are all “small business 401k 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.
It may sound like an individual 401k, a solo 401k, and a self-employed 401k are different types of plans, but in reality, all three terms are describing the same thing. An individual, solo, or self-employed 401k is a 401k-plan designed for self-employed people and sole-proprietor businesses. They offer the same savings flexibility and tax advantages of any other 401k plan, but in a way that is easy for individuals to manage themselves.
Individual 401k plans like the Single(k)® plan from Ubiquity offers a simple, low-fee plan to help individual business-owners start saving right away.
A self-directed 401k plan is similar to a traditional 401k, in that they allow for pre-tax savings and automated paycheck deductions. Where self-directed 401k plans differ from some types of traditional 401k plans is that employees can choose themselves where to invest their funds. (In some traditional 401k plans, the employer chooses the investment options for employees.)
401k plans for individuals, like Ubiquity’s Single(k) plan, are self-directed by default since the employer is the only one contributing to the plan.
A Simple 401k plan is, in many ways, a hybrid between traditional 401k plans and IRAs. Like with IRAs, employers offering Simple 401k plans don’t have to worry about testing their plan for compliance with certain regulatory requirements. Also, like IRAs and traditional 401k plans, both employers and employees can take loans against their retirement savings, and pay back funds and interest to their own accounts. Simple 401k plans do, however, have some disadvantages.
You don’t have the flexibility to customize a Simple 401k plan for the unique needs of yourself or your business the way you do with a 401k. If you have employees in the plan, any contributions that you (the employer) make to your employees’ plans are immediately “vested.” That means your employees own those funds (and can take them with them to a new job) the moment they are contributed. With a 401k, employers can set vesting schedules, so that employer contributions are only fully vested after the employee stays with the company for a certain amount of time.
Finally, Simple 401k plans have lower contribution limits than traditional 401k plans. For 2019, the maximum contribution to a Simple 401k plan is $13,000, plus an additional catch-up contribution of $3,000 for people 50 or older. Under 401k plans, individuals can contribute up to $19,000 for 2019, plus up to $6,000 in “catch up” contributions if they’re 50 or older.
Because of all these disadvantages, Ubiquity does not offer Simple 401k plans. We find that most individuals and businesses get more benefit from a traditional 401k.
“I am a new plan sponsor for my employer with Ubiquity. The friendliness of customer support was outstanding. So far, I am very impressed with Ubiquity! ”
No matter the type or size of your small business, whether you’re a sole proprietor or have dozens of employees, Ubiquity can help you save.
“Ubiquity: Very solid service and performance.”
What it is: Customizable savings for small businesses. Get the “white glove” treatment with a 401k retirement savings plan tailored just for your needs.
Who it’s for: Small businesses with 1-100+ employees who want to maximize their tax savings without the complexity, and with the lowest possible fees.
How much does it cost? Plans start at $165 per month.
How much can I save? Contribute up to the 401k maximum—up to $19,000 for 2019 ($25,000 if you’re 50 or older) plus optional employer contributions up to $35,000.
What it is: Budget-friendly, simplified savings for small businesses. Get all the essentials of a small business 401k plan “out of the box,” so you and your employees can start saving right away.
Who it’s for: Small businesses with 1-50 employees that want a simple, low-cost/low-fee way to save for retirement and lower their taxes.
How much does it cost? Plans start at $115 per month.
How much can I save? Contribute up to the 401k maximum—up to $19,000 for 2019 ($25,000 if you’re 50 or older).
What it is: Smart savings for solo business owners. Get a big business 401k plan even as a one-person operation.
Who it’s for: Sole proprietors and businesses with no full-time employees.
How much does it cost? Plans start at just $215 per year.
Contribute up to the 401k maximum—up to $19,000 for 2019 ($25,000 if you’re 50 or older) plus optional employer contribution up to $37,000.
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