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Category: 401k Resources

Find easy to understand 401k Resources and information from Ubiquity Retirement + Savings. Find easy to understand rules and regulations, along with tips and advice from our team of 401k experts. Free consultation! Call Ubiquity today at 855.466.5825

Exciting news retirement enthusiasts and future-you champions! The IRS is raising contribution limits for 2019. Get ready for lots of changes that will help savers prepare for the future.

A round-up of the biggest changes for your 2019 plan year:

  • 401(k): The amount you can contribute to your 401(k) plan per year goes up from $18,500 in 2018 to $19,000 in 2019.
    • If you’re self-employed or own your own business, you can save even more. The overall defined contribution plan limit moves up to $56,000, from $55,000.
  • IRA: After six years stuck at $5,500, the amount you can contribute to an Individual Retirement Account is being bumped up to $6,000 for 2019.

Want to learn more? We outline the highlights of the changes below.

Download our 2019 contribution guide here

If you need more detailed guidance, see IRS Notice 2018-83.

All About 401k Hardship Withdrawals

Dylan Telerski / 12 Jul 2018 / 401k Resources

hardship renovation

 

Sometimes life sends us devastating curveballs with deep financial consequences. If you’ve fallen into dire circumstances, and have already dipped into your savings, there may be hope in your 401k plan. While ordinarily, you cannot withdraw money from your retirement account until your employment ends (or turn 55), many plans allow something called a hardship withdrawal.

What counts as a hardship?

While lots of overwhelming financial situations can arise in life, only specific circumstances can be classified as a hardship. According to the IRS, a hardship must be an “immediate and heavy financial need” and “the [withdrawal] amount must be necessary to satisfy the financial need.” That second part means that there can’t be any other resources used to cover your emergency.

Most plans allow withdrawals for the following:

  • Unexpected medical expenses not covered by your insurance (For you, your spouse, or your dependents)
  • Purchase of a home (Your principal residence—not a vacation home)
  • Tuition and related educational fees
  • Preventing eviction or foreclosure
  • Funeral or burial expenses
  • Repair of major damage your primary home

Every plan is different; so it’s important to check with your employer see if your plan has any additional requirements or restrictions. Your plan administrator may need some documentation along with your request to illustrate your financial need. This will generally involve information about the hardship, verifying how much you need, and proving you’ve exhausted all other options.

After you take a 401k hardship withdrawal

Most plans require the employee to stop contributing to their plan for six months following a hardship distribution. Hardship distributions are taxable and subject to the 10% early withdrawal penalty unless an exception applies.

Do you qualify for a 401k hardship withdrawal?

To find out if your plan allows for a 401k hardship withdrawal you will need to talk to your plan sponsor, which might be someone in the HR department or even the owner of your business. You can also call the phone number on your 401k account statement.

Should I take a 401k loan instead of a 401k hardship withdrawal?

Employees are required to repay these loans, and unlike the hardship withdrawal, they will not be taxed for the loan. One thing to keep in mind about 401k loans is that they are generally recommended as an absolute last resort in comparison to other types of loans. Want to learn more? Check out our post on Is it a Good Idea to take out a 401k loan?

Anything else I should think about?

Tax Implications

If you are younger than 59 ½, you’ll owe a 10% early distribution tax, in addition to federal, state, and local taxes if you distribute pre-tax savings.

What’s So Safe About Safe Harbor?

Dylan Telerski / 11 Jun 2018 / 401k Resources

Getting ready to offer a 401(k) retirement plan to your employees? Way to go!

Offering benefits your employees want and need is a foolproof way to attract and maintain incredible talent. Along with an uptick in employee satisfaction, you’ll also gain more tax-deferred savings— it’s a win-win.

Before you go skipping into a field of “I’m-the-best-boss” bliss, keep in mind that offering a 401(k) plan comes with added responsibilities. One of these tasks is making sure your plan is run fairly, and that everyone has the opportunity to fully participate— not just owners and other company bigwigs.

Contributing to a 401(k) comes with significant tax advantages, so the government wants to make sure your plan doesn’t unfairly benefit the company owners and the highest earners. (You may hear these groups referred to as “highly compensated employees” or “HCE”s.) The IRS set up a series of nondiscrimination tests to ensure your plan is fair and encourages participation from all employees.

The IRS Gives Tests?!

There are 3 annual nondiscrimination hoops to jump through.

  • The Actual Deferral Percentage (ADP) test: This limits the percentage of compensation that HCEs can defer into their 401k based on the average contribution rates of the non-highly paid employees.
  • The Actual Contribution Percentage (ACP) test: This ensures that the employer matching contributions and any after-tax employee contributions contributed for HCEs are not disproportionately higher as compared to non-highly paid employees.
  • The Top Heavy Test: This ensures that HCEs cumulatively hold less than 60% of the total plan balance.

In essence, ADP and ACP testing both make sure your plan doesn’t unfairly benefit HCEs, while the Top-Heavy test ensures they aren’t the main people contributors to your plan.

If your plan fails one of these tests, it’s an administrative nightmare filled with costly correctives and piles of paperwork. You may have to return a portion of the contributions made to HCEs or make additional contributions for the lower paid employees. But hurry, if you take too long to make the plan corrections, you’ll owe a 10% penalty. The IRS has Fix-it guides for both ADP/ACP failure and Top Heavy failure but it’s best to prevent the problem before it happens.

Skip the hassle with Safe Harbor

Are you already covered in stress hives at the thought of complicated compliance testing? Trust me, we understand. You’re already running a business and trying to maintain some semblance of a work/life balance— the last thing you need is more administrative headaches. That’s where Safe Harbor 401(k) plans come in

A Safe Harbor plan is specifically structured to automatically pass non-discrimination tests, or avoid them all together. In exchange for getting an automatic pass on the ADP and ACP tests and the extra administrative duties that go with the testing process, business owners must make a minimum contribution to the plan each year—which must be immediately 100% vested.

Are there Safe Harbor deadlines?

Yes! If you are starting a brand new 401k plan and want to have Safe Harbor take effect in the current calendar year, your plan must be fully set up and active by October 1st.

Keep in mind, designing a plan to suit your needs (along with all associated admin tasks) takes time. This means that the very latest you should be finalizing your plan is September 21st.

Is Safe Harbor Right for me?

A Safe Harbor 401(k) can seem like an obvious choice— but it may not be the best option for every plan. Safe Harbor plans are a great fit for small businesses (particularly those with under 25 employees) and businesses that have failed noncompliance testing in the past. But while you save in administrative hassle, you may pay a bit extra in plan costs and required contributions.

Weighing the pros and cons of a Safe Harbor plan for your business can be challenging—without all the additional hassle of setting up a 401(k). Luckily, our experts at Ubiquity can walk you through the plan design options and the setup process to make sure your plan is designed to fit perfectly to your needs.

Small Business 401k Misconceptions

Sylvia Flores / 11 Jan 2018 / 401k Resources

The Small Business Owner

There are many small business 401k misconceptions which are largely due to small business owners having a lack of time, budget, and information on the subject.

In the past, small businesses have had few retirement plan options such as 401k plans that were built for their needs and those of their employees. The industry has had no problem marginalizing small businesses in favor of large ones with huge plan assets available in their 401k.

The good news is that that is rapidly changing. Still, many small business owners buy into 401k misconceptions.

Let’s put those to rest:

401k plans are time-consuming and designed for big businesses

Unfortunately, many small business owners are under the impression that 401k plans are a one-size-fits-all benefit that can’t be customized to meet their needs without the commitment of significant time and high fees.

There are plans available to small businesses that were designed with their needs and employees in mind. No longer do small businesses have to accept plans that are built for the needs of large corporations with hundreds, if not thousands of people. Nowadays, small business 401k plans exist that are customized for businesses with 50 or fewer employees. There are even 401ks built specifically for sole proprietors, known as a Solo 401k.

As far as the perceived time commitment, those same plans can be up and running in minutes if not a couple of days and require only a half hour each month to maintain.

Employer matching is a must

Even though matching employee contributions is a great way to recruit and retain talent, it’s not a requirement.

If a small business owner doesn’t want to or can’t afford to match, that’s perfectly fine. As an employer, you are already offering a wonderful service to employees by implementing a plan – matching, while there are tax benefits that come along with it, is simply icing on the cake.

For your hard-working employees, at the end of the day, some savings is better than no savings.

401ks are too expensive to implement and maintain

We know the thought of extra administrative fees weighs heavy in the minds of small business owners. Though there is some relief–through a tax credit—up to 50 percent of the cost to set up and administer the plan.

Ultimately, a plan’s cost depends on the bells and whistles that come with it—some basic plans can cost as little as $115 a month – that’s less than what your business likely pays to fill the water cooler!

High fees and poor advice are just part of the deal

Small business owners face many challenges and work way more than the average person to keep their business running efficiently. Why then do some retirement industry companies still expect you to settle for an inferior plan that charges exorbitant amounts and doesn’t offer solid advice on how to invest? Just because you may have fewer employees does not mean your retirement plan should suffer.

When the right plan is selected, small businesses are able to access low cost, effective funds for their 401k plan. No longer will small businesses and their employees settle for poor performing, high-cost funds that just absorb returns.

Likewise, employees should not feel like they’re alone and in the dark when selecting the retirement plan that will hopefully lead to their dreams coming true.

Small business owners shouldn’t be misled and buy into common myths that will discourage them from offering a 401k plan. Giving your employees a way to save for their retirement is a cheap and easy way to attract and retain talent and maintain an edge over the competition. For employees, participation in a 401k plan is a simple, effective way to save for retirement.

Get the Definitive Small Business Guide to 401k 

5 Steps to 401k Rollover

Andrew Answers / 24 Sep 2017 / 401k Resources

Congrats! You’ve got a new job, your desk is packed, and you’re ready to fully embrace a new chapter in life. But are you leaving your 401k behind? Here is your step-by-step guide to 401k rollover:

1. Check if your new employer has a retirement plan.

Even if they’ve got one, there are a handful of plans that don’t allow you to rollover funds from an old plan. If your new job offers a 401k that accepts rollovers, you’re safe to move on to the next step!

2. Get documents from your old 401k plan and start contributing to the new!

Contact your previous employer and get the necessary documentation that says what you want to do with the money from your old plan, such as move it to your new plan, keep it in place, or roll it over into an Individual Retirement Account (IRA).

NOTE! If you rollover your funds directly to another plan, you won’t be taxed. If you take a direct distribution, taxes will be assessed and you’ll also be hit with a 10 percent penalty for withdrawing money prior to retirement.

Take your time to consider the implications of the move – oftentimes you’ll experience a lot of jargon such as plan sponsor, trustee, and tax implications, so make sure you understand everything before filling it out.

3. Keep an eye out for the check.

If you requested a rollover or direct distribution of your old 401k), a check will be mailed to you. Who the check is made out to is very important.

If you requested a rollover, the check should be made out to your new plan custodian (for example, Ubiquity uses Charles Schwab, Matrix, and TD Ameritrade). The custodian is the entity that holds your money until you retire. If the check is in your name and you requested a rollover, something went wrong and you need to contact your prior employer’s plan custodian immediately.

If you requested a direct distribution and receive the check in your name but are reconsidering rolling the money to the new plan, there’s good news! As long as you don’t deposit the check, you have time to decide if you’d rather it go toward another 401k instead of taking the direct distribution and incurring the fees and taxes associated with that decision.

NOTE! A retirement plan provider (like Ubiquity) is simply an intermediary during this process. The plan provider does not cut the check. While you can contact your plan provider for help during this process, including to ask about the status of the check, their role is limited to forwarding your inquiry along to the custodian.

4. Alert your new employer about the rollover.

After you have the check – and it’s made out to your new plan’s custodian – talk to your new employer and update the appropriate person about the status of the rollover. Your new plan provider needs to be notified by your employer that the rollover money will be hitting your account. If they don’t know, then the new plan won’t look for money and that deposit will not be approved.

NOTE! That check you received then needs to be mailed to the new custodian. You can either handle that yourself or ask your employer to take care of it.

5. Make changes to plan investments if you choose!

Your new rollover money is a fresh start – choose new funds, contributions, or discuss with a financial advisor your options.

Rolling over your 401k is important because you don’t want to lose momentum saving or jeopardize compound interest. As long as you follow this checklist, you’ll stay on track to achieve a healthy retirement.

Download Your Definitive Guide to Small Business 401k

 

Is your company a learning organization? Does it strive to review, analyze and incorporate new thinking? At Ubiquity Retirement + Savings, we strive to create an inclusive culture of learning that everyone can participate in. That’s why we started our book club back in 2013, to strengthen our community, and encourage new ways of thinking. 

“A learning organization is the term given to a company that facilitates the learning of its members and continuously transforms itself.” – Mike Pelder

In a previous article, I had interviewed Professor Michael Finnegan of Quantum Camp, who agreed that critical thinking is not a common skill these days.

As a company, we want to change that.

Jim Collins’ “Good to Great”, Jonah Berger’s “Contagious”, Eric Ries’ “The Lean Startup” – these are just a sampling of the books we have chosen to read together. We believe that a learning organization goes beyond just having classes. Learning is built into the culture of our company.

Everyone here is invited to participate in the book club and anyone who participates is expected to read a book and examine the ideas its puts forth and bring his or her observations and insights to the table when we meet.

We carefully see what makes sense for our clients, our company, our goals and choose what we take with us into the future and what we leave behind.

This fosters another set of our values, community and participation.

Each person lending her or his voice to the chorus, sustaining the song, this is OUR way.

Roth and Your 401k

Andrew Answers / 11 Dec 2016 / 401k Resources

Pre-tax, and post-tax, and provisions! Confused by the retirement industry’s financial jargon? You are not alone. This episode of Andrew Answers defines what Roth means and how it affects your 401k plan.

Ask Andrew: How To Rollover Your 401k

Andrew Answers / 23 Oct 2016 / 401k Resources

You asked I answered!

Rolling over all your old 401k accounts into one sounds like a huge hassle, but one (like saving) is worth the trouble. While every provider has a slightly different process, the same things basically happen. Take a few minutes today to find out what those are and get moving on simplifying your life. After all, managing one account is far better than managing many!

The retirement industry is full of options. You can have flexibility on so many things that it may not be clear to the small business what to chose and from whom. In this episode of Chad Chats, from Ubiquity Retirement + Savings, formerly The Online 401k, you will learn what features make a great plan. Every small business is different, but that doesn’t mean your retirement plan has to be complicated. From investments to plan design, Chad gives you tips on what to ask for when you’re setting up your company’s new retirement account. If you have an existing one, you may learn something that will make managing your current plan even easier.

Here’s to you, small business owner, for setting up the right retirement plan for you and your employees!

A throwback to Ubiquity Retirement + Savings’ history, here, we get a glimpse at the genesis of our company that started as The Online 401k.

“In the first episode of Chad Chats, I recount how and why I started The Online 401k. My mission: to help the 40 million Americans who do not have the ability to save at work. Take less than two minutes and check out the video below!”

© 2018 Ubiquity Retirement + Savings / Privacy Policy
1160 Battery Street, Suite 350, San Francisco, CA 94111 / Support: 855.401.4357

© 2018 Ubiquity Retirement + Savings / Privacy Policy
1160 Battery Street, Suite 350, San Francisco, CA 94111 / Support: 855.401.4357