How to Recession-Proof Your 401(k)

Dylan Telerski / 10 Oct 2022 / 401(k) Resources

Panic is palpable during a recession. Watching the daily dip in the Dow can be a painful experience for people who are accustomed to checking their stock portfolios daily.

Retirement savers may have heard that they can take out a 401(k) loan to help them through the crisis. Whether you’re actively involved with your plan or not, any market downturn presents a good opportunity to reassess and potentially recession-proof your 401(k).

Focus on what you can control

What we know from decades of watching the markets through good times and bad is that a long-term focus with regular contributions is the best strategy to grow a retirement nest egg. Resist the urge to make a hasty, knee-jerk reaction and pull your money out. Stick to your plan to reach your investment goals. It WILL get better!

Make minor changes to benefit your situation

What if you can’t rely on the long-haul, and you plan to retire within a few years? If you need short-term finances, you can sell some of your investments now, but remember that prices are low. You may end up taking a loss on the sale versus the price you originally paid for the stock. However, if retirement is still five or more years into the future, you can hold off and expect more normal annual returns when the market resumes its course again.

Take a closer look at asset allocation. Market timing rarely works, but you should at least make sure your portfolio consists of diversified mutual funds, as well as a mix of stocks and bonds. Consider target-date funds if you are older, as the fund manager will move your assets from riskier stocks to less-risky bonds and money market funds as you get closer to retirement.

Even if you’re a younger investor, you can review the assets you currently own and rebalance. If your portfolio is skewed heavily toward stocks, consider adding some bonds. If you have invested too heavily in the market, shifting to cash temporarily can be a protective measure if market volatility is wild.

Assess the risk on your individual securities. Look for mutual funds with “growth and income” or “balanced” in the name.

Most importantly, discuss your situation with your financial advisor. They know your portfolio and the market, so are better able to assess your chances of success or failure when taking your investments into your own hands.

Look for opportunity

Where some see a market wipe-out, others see opportunity. Many investors are actually increasing their contributions during the recession. Elective salary deferrals stretch further when stock prices drop.

If you can afford to, contact your plan administrator to adjust the withholding percentage. This money will come out of your paycheck seamlessly and go directly into your retirement savings. This strategy makes sense especially if you have failed to maximize your employer match; this is free money that will continue to grow for you over the long haul.

As of 2022, contribution limits have increased to $20,500, with an additional $6,500 allowed for those age 50 and older. This may be an opportunity to buy key stocks at relatively low prices to set yourself up for bigger future returns.

Recessions are common to the American economy, cycling every four years and lasting 10 months on average, but stock prices hit new highs after rebounding from each downturn. Hang in there, stay the course, and keep investing. Sticking to your plan is always safe, but don’t pass up an opportunity when it knocks. You may be able to make small, thoughtful adjustments that can optimize your returns. Contact Ubiquity to learn more about how to maximize 401(k) plans during the pandemic.

Should I Stop Contributing to My 401(k) When the Market Is Down?

Dylan Telerski / 5 Oct 2022 / Personal Finance

The news headlines may have you feeling financially defensive. It’s natural to feel nervous about 401(k) contributions, even though the current laws allow 401(k) contributors to borrow from their plans without penalty. But is your situation dire enough to warrant a reduction in savings for your future?

Signs You May Need to Pause Your 401(k) Contributions

Conventional wisdom dictates that you treat your retirement fund as a non-negotiable expense. However, many people are in a financial crunch. If you have no other alternatives and at least half these factors apply to you, a short-term pause may be enough to keep you afloat:

• Your income dropped, but your expenses didn’t go down. Sit down and look at your current spending and budget. Consider other ways of reducing expenses temporarily.
• You’re falling deeper into credit card debt. Credit card debt can snowball quickly with high interest rates. If you’re missing minimum payments, the penalties can add substantially onto what you owe. Some financial institutions offer debt relief programs and fee waivers to get you out of the crisis without impacting your 401(k).
• You’re very close to retirement. If you were planning to retire in the very near future, you may not want to add another year or two of work. Check to make sure you’re not overexposed to riskier equity investments. Instead of cutting your contributions, you may consider shifting over to less-risky investment choices like stocks and bonds.
• Your employer suspended matching contributions. Employer matching makes 401(k) savings particularly lucrative. If your employer has suspended matching contributions, it’s less expensive to halt your savings in favor of paying down debt with that money instead.
• You have no emergency fund and are at risk of losing your job outright. If you’re worried about losing your job, skipping a few paychecks’ worth of retirement savings can give you the cash reserves you need to temporarily pay for living expenses, should you suddenly lose your job.

Once you’re in recovery mode, consider doubling down on your contributions to catch up.

Reasons Not to Stop Contributing to Your 401(k) – And Maybe Ramping Up

Market volatility is troubling, but consider staying the course or even ramping up if:

• You have plenty of time until retirement. People in their 20s, 30s, 40s, and 50s have plenty of time to see a rebound and recoup any present losses.
• You want to maximize your portfolio. In fact, now might be the perfect time to load up on quality investments at rock bottom prices. Stocks are on sale. Shares are cheap. You may have had your eye on a few different investments, but the acquisition price was too high. Now many prices have come down on investments that can only go back up as the economy recovers.
• You like the idea of paying less in taxes this year. Remember, retirement savings lowers your tax liability. For most retirement plans, the money put in reduces the amount of income you’re taxed on, allowing your money to grow tax-free as well.
• You’re spending less. Right now, you may not be spending money on tickets for sports, concerts, movies, or museums. There’s no money spent at restaurants, shopping for clothes, or vacations. Without all these drains on your cash reserves, the timing has never been better to invest more into your retirement, allowing this money to mature and grow your nest egg.

What to Do If Your Employer Cuts Its 401(k) Match

During the last financial crisis, over 200 U.S. companies suspended or reduced their 401(k) matches, affecting 4.9% of all participants. Fortunately, three-quarters of companies reinstated their match within a couple of years.

The consequences can be painful for savers, though; just one year of missing $4,040 in employer match (the average contribution), assuming 7% returns over 30 years would result in $30,753 in lost earnings.

If your employer has cut their 401(k) match:

• Focus on damage control first. If you need money to put food on the table or keep a roof over your head, it’s okay to build your emergency cash reserves.
• If you can, boost your contributions. If your job is secure, consider increasing your contributions to make up for the missing match. You might also consider opening up an IRA in addition to your 401(k) to take advantage of more investment choices and lower fees.

The Bottom Line

A short-term dip shouldn’t affect your long-term savings goals. That said, it’s worth checking your account periodically to see if you should consider adjusting your strategy to better align with your unique goals and risk tolerance.

There is no substitute for a quick consultation with a professional financial advisor.

If you are interested in staying the course and starting or switching a 401(k) plan for small business, you can count on Ubiquity for affordable plans at a flat, fixed rate, with no AUM fees.

A Small Business Owner’s Guide to CalSavers

Dylan Telerski / 7 Jun 2022 / Retirement News

A Small Business Owner’s Guide to CalSavers

Answering your top questions about California’s retirement savings program vs. alternative plans

In an effort to help Californians save for a financially secure future, the state of California is rolling out an initiative requiring all employers with five or more employees offer some type of retirement plan for their workers.

CalSavers—the state-sponsored plan—offers a basic Roth IRA to help employees building their retirement savings. But with low contribution limits, limited investments, and limited tax advantages, is it the best solution for empowering your team’s financial future?

At Ubiquity Retirement + Savings, we’ve been helping small businesses and their employees grow their nest eggs for over two decades with affordable, customized 401(k) solutions. While we believe the state’s program is an important step toward ending the looming retirement crisis in California, a 401(k) might be better alternative for your small business and your employees’ futures.

Why is the state of California offering a retirement plan?

55 million American workers—more than 40% of full-time private-sector employees—don’t have access to a workplace retirement savings plan.

Why is this such problem?

As very few employers offer pensions and Social Security is drying up —with funds expected to be depleted as soon as 2035, it’s more responsibility is for saving falls more on the individual than ever before.

Since 2012, at least 45 states have implemented or considered establishing state-facilitated retirement savings programs–with the states of Oregon, Illinois, and our home state of California leading the charge.

In July 2019, California began rolling out CalSavers, the state-sponsored IRA program for the 7.4 million private-sector workers in the state who do not have access to an employer-sponsored retirement savings plan. As of April 30, 2021,  more than 10,000 employers were registered allowing nearly 140,000 individuals to save for their future.

We are rapidly approaching the next CalSavers deadline on June 30, 2021–employers in California with more than 50 employees will be required to enroll in the state-run Roth IRA or offer a private option.

How does CalSavers work?

CalSavers is an automatic-enrollment, payroll deduction Roth IRA. We know this sounds like a lot of financial jargon–so let’s breakdown what that means.

Automatic Enrollment

This means, if your business opts into the state provided IRA, after a 30-day grace period, eligible employees will be automatically start saving for the future through a 5% contribution from their payroll.

How does this work in practice?

Added employees will a notification from CalSavers and will have 30 days to decide to customize their account, opt out of the program, or be automatically enrolled with the standard savings choices.

Payroll Deduction

This means participating employees contribute a portion of their salary into their IRA automatically from each paycheck.

Roth IRA

A Roth IRA is an individual retirement account where the saver pays taxes on money going into your account, and (if you meet certain IRS criteria) all future withdrawals are tax-free.

Roth IRAs have a couple important rules and restrictions to keep in mind.

• You can’t contribute to a Roth IRA if you make too much money. The income limit for singles in 2021 is $140,000.
• The amount you can contribute each year changes, based on inflation. In 2021, the contribution limit is $6,000 a year unless you are age 50 or older—in which case, you can deposit up to $7,000.

Click here to read more about 2021 contribution limits

How much does the state-run plan cost my business?

There are no employer fees in the CalSavers program–nor are you allowed to make tax deductible matching contributions, as you could in a 401(k) plan.

Your employees, on the other hand, will pay annual asset-based administration fee of 0.825% to 0.95%, depending on their investment choices. These fees will be pulled directly from their assets in their account.

What happens if an employer does not register for a qualified plan by the deadline?

If your business does not register for CalSavers, or an alternative qualified private retirement plan, you may be charged a a $250 penalty per employee starting 90 days after the deadline. The fine increases to $500 per employee 180 days after the deadline.

What are the benefits of enrolling in the state-run plan?

There are several advantages for companies to choose the California’s IRA product including:

• No cost to the employer
• No fiduciary risk
• No investment management responsibilities.

What are the potential drawbacks of enrolling in California’s state provided option?

The access to workplace retirement savings plans offered by Calsavers is a big step forward in solving the looming retirement crisis. However, there are significant drawbacks when compared to alternative eligible 401(k) plans from a private provider like Ubiquity Retirement + Savings.

• The contribution limit for a 401(k) is more than three times higher than that of an IRA.

Higher contribution rates allow savers to take advantage of the power of compound interest, meaning the more money that is saved, the more it can grow over time.

• Missing out on significant tax benefits

Did you know small businesses that sponsor retirement plans for their employees are rewarded by the government? Thanks to the SECURE Act of 2019, small businesses can qualify for up to $16,500 in tax credits over a three-year period by starting a qualified retirement plan, such as a 401(k) plan, with auto-enrollment. Employers choosing the state provided option are not eligible for these benefits.

• CalSavers charges your employees asset-based fees.

Currently CalSavers does not offer the choice to select a flat-fee program, which provides more transparency and ultimately lower costs as savings accumulate. By charging an asset-based fee, your employees are increasingly penalized based on how much they save.

What are the alternatives to the CalSavers program?

Businesses can offer a qualified retirement plan from a private provider, which could allow for more savings while providing tax incentives and greater customization.

Let’s see how the state mandate IRA stacks up against Ubiquity’s most popular small business savings vehicle.

1. This limit is subject to cost-of-living increases for later years (for prior years, refer to this cost-of–living adjustment table.)

2. Available to eligible employers who have less than 100 employees who received at least $5,000 in compensation in the previous year, had at least one participant who was a non-highly compensated employee, and in the last 3-years did not contribute to a benefit plan for your employees through a plan sponsored by you or a member of a controlled group that includes you.

Choose the better path to savings

If you’re looking for the maximum savings potential and tax benefit, Ubiquity provides customizable 401(k) plans that act as a CalSavers alternative. For over two decades we have pioneered flat-fee retirement plans, designed for small businesses, all delivered online to you and your employees. That means no hidden fees or AUM charges in the fine print. We have helped hundreds of thousands of employees save towards their future.

The content of this blog is for informational purposes only. It should not be used as a substitute for specific tax, legal and/or financial advice that considers all relevant facts and circumstances. Be sure to consult a qualified financial adviser or tax professional for official guidance.   

How Much Do Companies Typically Match on 401(k) in 2022?

Dylan Telerski / 9 Mar 2022 / Business

Employer matching contributions are a common feature of many company 401(k) plans, with 98% of employers adding partial or full matching bonuses. The typical American company is matching 6% of employee contributions in 2022.

Employers are also increasingly recognizing the 401(k) employer match as a powerful incentive to encourage loyalty to the company; in 2022, 59% have vesting schedules ranging from one to six years before employees are entitled to walk away with the full amount of employer-matched funds.

If you own a small business or work for one, keeping tabs on what other companies are matching on their 401(k)s can help you gauge how competitive your own plan is and better adjust your contributions for the year.

Partial 401(k) Matches in 2022

In a partial match plan, the employer matches a smaller percentage of what employees contribute. A common partial match is 50 cents for every dollar of employee contribution, up to 6% of the employee’s salary. Even if employees opt to put in a greater amount – say 8% – the employer is still only responsible for putting in up to 6% in that case. So, for instance, a person earning $100,000 a year might contribute $6,000 and receive another $3,000 in partially matched funds.

Full 401(k) Matches in 2022

Full 401(k) matching means employers put in dollar-for-dollar what employees contribute, up to a set default rate or the IRS maximum. While 3% was the norm at one time, 65% of plans are now using a default rate higher than 3% in order to significantly boost savings for participants over time. In 2022, the most common default rate is now 6% of pay, according to the Plan Council Sponsor of America.

2022 Safe Harbor Matching Formulas

Safe Harbors are a popular type of 401(k) plan that allows businesses to bypass many of the annual IRS nondiscrimination testing requirements when they agree to a standard matching formula. Any employer contributions made in a Safe Harbor plan must be fully vested for all employees.

The most common Safe Harbor 401(k) matching formulas are:

• 100% match on the first 3% of employee contributions, plus 50% match on the next 3-5% (Basic match)
• 100% match on the first 4-6% of employee contributions (Enhanced match)
• At least 3% of employee pay, regardless of employee deferrals (Nonelective contribution)

401(k) Limits in 2022

Employees can put up to 100% of their compensation into a 401(k), up to the maximum limit. In 2022:

• Employees can contribute up to $20,500 (up $1,000 from 2021)
• Employees age 50 and older can add an additional $6,500 on top of this amount (unchanged since 2021)
• Employers can add $40,500 to their own 401(k), bringing the total balance up to $61,000 in 2022 (up $3,000 from 2021)

SIMPLE 401(k) Limits in 2022

Employers offering a SIMPLE 401(k) allow employees to save up to $14,500 in 2022, which is up by $1,000 from 2021. Those age 50 and older may contribute another $3,000 for a total of $17,000.

Employers can contribute dollar-for-dollar up to 3% of a worker’s pay or contribute a flat 2% of compensation regardless of the employee’s own contributions. Employer 401(k) contributions are subject to an employee compensation cap of $305,000 for 2022.

Engage Employees and Encourage Them to Save With a 401(k) Match This Year

The employer match is an excellent incentive tool to encourage employees to participate in your small business 401(k) plan. Matching not only helps employees create better financial security, but allows you and higher-paid executives the opportunity to max out your retirement savings as well.

Ubiquity is a leading provider of 401(k) plans geared specifically to small businesses. We are happy to help you set up an easy and affordable small business retirement plan with matching and educate your workforce so they understand what a great and valuable benefit you’re offering. Contact us to learn more.

What Is the Change to the Maximum 401(k) Contribution for 2022 for 50 and Older?

Dylan Telerski / 10 Feb 2022 / Business

Turning 50 in 2022 is more than just another milestone birthday if you participate in a 401(k) plan. Participants who are 49 and younger may save $20,500, but those over 50 are allowed an additional catch up contribution of $6,500. Those turning 50 (or older) can put a maximum of $27,000 into their 401(k) plans in 2022.

When can a person turning 50 in 2022 start contributing an extra $6,500 for retirement?

If you were born in 1972, you’ll be able to start setting aside extra money in your retirement savings account starting on January 1, 2022. This catch up contribution is designed to help people nearing retirement age rapidly increase their nest eggs, even if they didn’t save as much when they were younger.

The ability to save an extra $6,500 can also help lower a 401(k) plan participant’s taxable income for the year if contributing pre-tax, potentially taking them to a lower tax bracket and percentage of their income that’s due.

Why didn’t the 401(k) catch up contribution increase in 2022?

The catch-up contribution limit changes to keep up with rising inflation (as does the regular 401(k) contribution), though it doesn’t necessarily change annually.

• When the catch up contribution was first announced in 2002, the limit was $1,000
• Every year from 2002-2006, the allowance increased by $1,000
• From 2006-2008, the limit remained $5,000
• From 2009-2014, the limit increased to $5,500 and remained that way
• From 2015-2019, the limit increased to $6,000
• In 2020, the limit increased to $6,500

When will the 401(k) catch up contributions increase?

Based on recent trends, we can expect the limit to increase to $7,000 in 2026. However, in the summer of 2021, Congress members in the Senate and House proposed a bill (SECURE 2.0) that would expand catch up contributions further for workers in their 60s.

The House bill would allow a catch up of $10,000 for anyone aged 62, 63, or 64. This contribution would apply as a Roth contribution – meaning that it would be taxed as regular income the year in which it was deposited, but there would be no taxes owed upon withdrawal. The Senate bill would allow $10,000 catch up contributions for anyone over 60, but the pre tax treatment would remain the same.

There is no telling when or if SECURE 2.0 will pass, but the changes could make a big difference for people needing to bolster their savings as they near retirement.

What is the 2022 catch up contribution for SIMPLE 401(k)s?

A SIMPLE 401(k) or IRA plan permits a $3,000 catch up contribution in 2022, which has stayed the same since 2015. Contributions are considered “catch up” after the annual contribution reaches $14,000.

Should you take advantage of the catch up contribution in 2022?

Absolutely. If you can find strategies to save more of your income for retirement, this catch up contribution is an an excellent opportunity to reduce taxable income and increase retirement savings

For easy, low-cost, flat-fee 401(k)s for small business, get in touch with Ubiquity today! As your plan provider, we are here to answer any questions you may have on topics ranging from the 401(k) contribution limits for high earners, to the potential benefits of adding a Safe Harbor provision. We will give you all the information and guidance you need to maximize your retirement savings. Contact us today to get started!

How to Save More in 2022 With a 401(k)

Dylan Telerski / 10 Feb 2022 / Business

Small business employers and employees with a 401(k) plan can save more in 2022 in more ways than one:

• Higher limits: Increasing IRS limits will allow you to save more in 2022, so it’s worth looking into strategies that allow you to maximize your 401(k) investment.
• Smart saving strategies: You might cut back on spending or pick up a side gig to bring in more income, refinance your mortgage to take advantage of rock bottom interest rates, or put bonuses and tax refunds into your retirement savings account.
• Reduced tax burden: Even when times are tough, knowing how to take full advantage of a 401(k) opportunity can build significant wealth over time while also lowering your tax bracket for the year.

A small business 401(k) is the ideal way to generate considerable wealth for retirement using investment returns and compounding interest. The wise use of pre-tax dollars can ease your 2022 income tax burden as well.

How to save more for retirement with a 401(k) in 2022

From 2021 IRS 401(k) savings limit have increased $1,000 in 2022 to $20,500. The 2021 401(k) catch-up contribution for those age 50 and over will remain the same in 2022, letting those who qualify add another $6,500 in savings. It’s important to note that 401(k) plan contributions can be made with pre-tax dollars, so the more you contribute, the less you’ll be taxed on this year. Even $1,000 contributed can be enough to lower your tax bracket and the percentage of your income paid to the IRS.

Employers have the option to add a discretionary contribution of up to $40,500 to an employee’s account. Also, if you are a small business owner with a Solo 401(k), you’re able to contribute to your plan as both employee and employer – to a maximum amount of $61,000 in 2022. Your spouse may join the plan, potentially bringing your household maximum to $122,000. The $6,500 catch up contribution (for individuals age 50 or older) is allowed in addition to these maximum limits.

Surprisingly, IRA limits aren’t changing in 2022 – they’re still $6,000 or $7,000 if you’re age 50 or older – so using a 401(k) savings vehicle is wise if you’re hoping to combat this year’s inflation spike.

How much should I set aside to max out my 401(k) in 2022?

Investors under age 50 who are on a biweekly pay schedule will need to save $788 per check to reach the $20,500 retirement plan contribution limit in 2022. Those over 50 looking to capitalize on the catch up bonus will need to save $1,038.

What strategies do people use to max out a 401(k)?

There are numerous strategies to help you save more for retirement in 2022, such as:

• Saving your entire annual raise to put into your account.
• Putting tax refunds, profit shares, and bonuses into savings.
• Using birthday or holiday cash and inheritance money to maximize a 401(k).
• Taking smaller budget trips rather than large vacations.
• Cutting back on spending in small ways – like eating out one time less per week.
• Canceling unnecessary or unused membership subscriptions.
• Refinancing the mortgage to lower housing costs and putting the difference into the 401(k).

How can I change my 401(k) deferral elections in 2022?

Employees may contact their Human Resources Department at any time to change a 401(k) deferral election. The employer will then contact their 401(k) plan provider to make the changes. As a provider and administrator, Ubiquity offers 401(k) plans geared toward small businesses. Contact us to learn more about maximizing your 401(k) savings this year.

How to Start a 401(k) for My Small Business

Dylan Telerski / 10 Feb 2022 / Small Business 401k

A small business 401(k) is an excellent way to show your team you care about their future.

Not only are 401(k)s ideal for boosting morale and sustaining a committed workforce, but they also offer benefits for your own retirement and tax savings. The time has never been better to start a 401(k), as companies with fewer than 100 employees will receive up to a $5,000 annual tax credit to offset the cost of administrative fees for the first three years.

To start a 401(k) plan for your small business, you’ll need to:

• Consider which plan you might want.
• Find the right 401(k) provider that meets your needs and goals.
• Determine whether you’ll match, create a plan document, and set up an asset trust.
• Devise a recordkeeping system.
• Let employees know about their participation options.
• Maintain your plan.

Consider which 401(k) plan you might want.

There are several types of 401(k) plans:

Traditional 401(k)s

Many businesses choose the Traditional 401(k) to offer multiple investment options to employees and a way of saving for retirement with tax advantages. Many employers match employee contributions and deduct a portion of employee salaries from their tax obligations for the year. With a traditional plan, no tax is paid on the income put into the account at the time – but rather, tax is paid when money is withdrawn in retirement.

The 2022 limit is $20,500, plus $6,500 additional if you are age 50 or older and want to maximize your savings later in the game.

Roth 401(k)s

Most plans have the option of paying taxes when you put the money into the account rather than when you take it out. This is called a Roth contribution.

Like pre-tax deferrals, Roth 401(k) contributions are made to the plan by employees through payroll deduction. However, Roth contributions are deducted from wages after payroll taxes have been calculated. The investment earnings on Roth contributions grow tax-deferred while held in the plan, just like traditional pre-tax contributions. This money then has the potential to be withdrawn entirely tax-free when the saver hits retirement.

The 2022 limit for all 401(k) contributions is $20,500, plus $6,500 additional if you are 50 or older. This includes both Roth and pre-tax contributions.

Safe Harbor 401(k)s

A Safe Harbor 401(k) is ideal for high earners looking to invest aggressively in a retirement account. Unlike traditional plans, a Safe Harbor does not need to pass deferral and match discrimination tests to prove that it benefits all employees and not just highly compensated executives. Employers can choose to make a non-elective contributions of 3% or a match of up to 6%.

In 2022, business owners with Safe Harbor plans can contribute up to $61,000 plus $6,500 in catch up contributions for owners age 50 or older.

SIMPLE 401(k)s

A SIMPLE 401(k) is a hybrid of an IRA and a 401(k). These accounts allow you to bypass compliance testing and enable employees to take out loans from their accounts, if necessary. Employees are immediately vested and there is less flexibility for employers to customize.

For 2022, the maximum contribution is $14,000 plus $3,000 in catch up contributions for people age 50 or older.

Solo 401(k)s

You can open a 401(k) for yourself (and a spouse or partner), even if you have no other employees as a sole proprietor, freelancer, or startup entrepreneur. You may make contributions as an employer and employee to maximize your tax-advantaged savings.

The contribution limit of $61,000 (plus $6,500 for people age 50 or older) in 2022 is higher than with a SEP IRA.

Find the right 401(k) provider that meets your needs and goals.

Still not sure which plan is right for you? Download our 401(k) guide to find the right 401(k) plan for your small business.

A 401(k) plan provider covers the administrative burden of establishing and running the plan, which can include:

• Auto-enrollment
• Employee support
• Loan administration
• Trust setup
• Tax filing

You can expect to pay a monthly charge for this service. Some 401(k) providers work with preferred brokers, while others offer the freedom to choose any broker. Depending on the broker, this financial adviser may choose the investments for the plan or help plan participants choose their own investments.

Determine whether you’ll match, create a plan document, and set up an asset trust.

Next, you’ll need to consider: How much do your employees want to invest in their 401(k)s? How much are you willing to contribute? Keep in mind, any contributions you make can be deducted as a business expense.

The maximum contribution is $61,000 for employees under age 50 and $67,500 for employees age 50 or older. Depending on the type of 401(k) established, certain rules may apply. You may choose to match 50 cents on the dollar, dollar-to-dollar, a percentage of salary, or up to certain limits.

All of this should be clearly spelled out in a legally binding plan document written by the financial institution and professional tasked with handling the plan. This document will also explain employee eligibility or vesting requirements, contribution amounts, and an explanation of how contributions and distributions will be made. A trust will need to be set up to hold the assets.

Devise a recordkeeping system.

You will need a system for tracking employer and employee contributions, earnings and losses, plan investments, expenses, and distributions. Many providers, including Ubiquity on most plan types, handle recordkeeping on your behalf. Otherwise, you may consider payroll software or SaaS payroll services.

Let employees know about their participation options.

Employees can only participate in your generous incentive if they know it exists. A plan provider can give you materials that describe the plan’s benefits, features, and employee rights, which you may then circulate. Employee seminars and presentations can be conducted to maximize participation.

Maintain your plan.

All plans require plan information reporting to employees, payment of plan provider fees, summary reports for plan participants, and completion of Form 5500 for the IRS.

Some plans may require Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) nondiscrimination tests that compare salary deferrals of highly-compensated employees vs. those of non-highly compensated employees.

How many employees do you need to have a 401(k) plan?

To offset the cost of administering a new plan, companies with fewer than 100 employees can receive up to $5,000/year in tax credit over three years (worth $15,000 in total). Plus, you can gain an additional $500 per year in tax credit over three years if you add an auto-enrollment feature to your plan. However, you can start a 401(k) plan even if there are no other employees other than yourself or yourself and your spouse!

It’s a common misconception that only large and mid-sized businesses can afford to offer a 401(k) to their employees in 2022. In the past, 401(k) providers charged small businesses exorbitant fees. Now, you can work with Ubiquity to find small business 401(k)s that are easy and affordable with one flat monthly rate and no assets under management fees – allowing you to grow your 401(k) without paying more.

How much should an employer contribute to the plan?

A common employer match is 50 cents on the dollar up to 6% of an employee’s salary. Another common match formula is dollar-to-dollar up to 3% of an employee’s salary. About one-quarter of small business owners offer no match at all, but may provide profit-sharing contributions on a good year.

What are the benefits of a 401(k) plan compared to other retirement options?

A 401(k) plan can offer your small business unique benefits when compared to other retirement savings plans. Consider:

Tax-advantaged retirement saving: The biggest advantage of choosing a 401(k) over other retirement options like the SIMPLE IRA, SEP IRA, or profit-sharing plan is the amount of tax-advantaged saving you’re allowed. Saving more creates a bigger retirement nest egg for your future, but also helps you save today. Saving tens of thousands of pre-tax dollars will take your taxable income down a few brackets, meaning you’ll be paying a lesser percentage of your income in taxes every year you contribute.

In 2022, individuals may contribute up to $20,500 to their 401(k) plans. Employers offering matching or non-elective contributions can increase this amount to a maximum of $61,000. Savers who are age 50 or older are also allowed a $6,500 catch-up contribution on top of these limits. Employers are allowed to set their own matching formulas, but they must pass annual non-discrimination tests to ensure fairness for all employees.

By comparison, the 2022 Traditional IRA limit is $6,000 with a $1,000 catch-up contribution allowed for those age 50 or older. You can set aside more with a SIMPLE IRA ($14,000 + $3,000 catch-up) or a SEP IRA ($61,000 + $1,000 catch-up). Here’s the caveat: though the SEP IRA has a high limit, only the employer may contribute to this limit, and whatever percentage of compensation employers wish to contribute to their own plans they must also contribute for each eligible employee.

Employer matching contributions: Matching contributions are a top benefit of 401(k) plans. Typically, employers will match a set percentage of their employees’ contributions. For example, a person earning $50,000 a year, with a 100% match up to 3% 401(k) plan, could expect to receive an extra $1,500 from the employer as long as the individual also contributes as much.

Eligibility: Anyone age 21 or older who meets the employer’s service requirements can save the maximum amount of money in a 401(k), no matter how much they earn. To contribute the full amount to IRAs, account holders must have a modified adjusted gross income worth less than $129,000 (single) or $204,000 (joint). Contributions begin phasing out above those amounts, and you can’t contribute once your income reaches $144,000 (single) or $214,000 (joint).

Investments: Participants in a 401(k) plan are typically limited to the investment options selected by their employers – typically a range of mutual funds – but these are relatively safe bets offering stable returns. IRAs typically allow greater investment choices, including a full suite of stocks, bonds, CDs, mutual funds, ETFs, and more. Yet, without investment knowledge, these options can be riskier.

Contact Ubiquity to find out how to get a 401(k) plan going in as little as 15 minutes.

2022 Retirement Plan Contribution Limits

Dylan Telerski / 12 Nov 2021 / 401(k) Resources, IRA Resources, Retirement News

Curious how much you can invest toward your retirement in 2022?

Download the Ubiquity Retirement + Savings 2022 Contribution Guide

The IRS has announced the 2022 contribution limits for retirement and health savings accounts. This includes contribution limits for 401(k) and 403(b) plans, income limits for IRA contribution deductibility, and the salary threshold to classify “key” and “highly compensated employees”

While contribution limits for individual retirement accounts (IRAs) won’t increase from 2021 to 2022, there is good news for retirement savers who participate in a workplace employment plan like a 401(k).

Let’s take a look at the updated limits below:

2022 401(k) and 403(b) individual contribution limits (IRS 402(g) Limit)

The IRS has also set limits for the total amount that may be contributed to your retirement savings 401(k) account from all sources combined (IRS section 415 limit). This includes any employer matching or profit-sharing contributions, and any employee after-tax contributions. For 2022, this limit has increased from $58,000 to a new maximum of $61,000.

Every plan is different, so it’s important to refer to your Plan Document for any compensation or other applicable limits.

2022 Highly Compensated and Key Employee definitions and limits

2022 Roth and Traditional IRA contribution limits

2022 Traditional IRA modified adjusted gross income limit for partial deductibility

2022 Roth IRA modified adjusted gross income phase-out ranges

2022 Simple IRA contribution limits

2022 Health Savings Accounts (HSA) contribution limits

**Catch-up contributions can be made at any time during the year in which the HSA participant turns 55.

If you need more detailed guidance, see IRS Notice 2021-61.

Federal Retirement Legislation Aims to Expand Auto-IRA Program

Dylan Telerski / 8 Nov 2021 / Business

The $3.5 trillion federal budget plan contains a retirement mandate, refundable Saver’s Credit, and new limits to wealthy retirement savers’ tax favorability. Lawmakers hope to shore up funding for retirees, prevent overreliance on Social Security, and close the gaps between the haves and have-nots. If passed, the plan would go into effect in 2023, which gives companies plenty of time to decide whether to create an employer-sponsored plan to offer workers instead.

What’s In the Retirement Mandate Proposal?

The retirement mandate would compel all businesses with five or more employees who don’t currently offer a retirement plan to automatically set aside 6% of new workers’ income into a low-cost IRA plan, with automatic escalations up to 10% over time. Workers can choose to opt out of the plan, and employers are not required to contribute a match. To help offset administrative costs, the proposal includes tax incentives for small business employers – or a $900/year tax penalty per employee per year for failure to comply.

The U.S. Treasury would also make the Saver’s Credit refundable and contribute $500 to $1,000 per year to each account. Currently, there is a nonrefundable tax credit, which reduces one’s overall tax bill, but does not accrue interest and growth in a retirement savings account.

Wealthy savers making over $400,000, on the other hand, would see new caps on tax favorability. Individuals with retirement accounts worth more than $10 million would be prohibited from contributing additional savings and would have to take a new required minimum distribution each year. The bill also seeks to repeal Roth conversions in IRAs and 401(k)s in the so-called “mega-backdoor Roth” strategy.

Why Is the Government Proposing Retirement Legislation Now?

A third of American workers in private industry didn’t have access to an employer-sponsored retirement savings vehicle like IRAs or 401(k) plans in 2020, according to government data. Part-time workers, service-sector employees, and minimum wage workers were the least likely to receive assistance in setting money aside for retirement. Workers are 12 times more likely to save for retirement when given the chance to do so through an employer plan.

Is This Federal Retirement Plan Any Good?

When states like Illinois, Oregon, and California enacted retirement mandates, 51% of employers chose to create their own plans instead, according to research by Pew Charitable Trusts. This allows them to choose the plan design and offer competitive benefits to their workers, rather than sign up for the status quo. Plans like these can be effective at generating savings. Take Oregon, for instance, where $120 million has been saved since 2015, when the mandate was put in place; some 73% of employers were either “neutral” or “satisfied” with the OregonSaves program.

Will the Plan Be Implemented?

The House Ways and Means Committee approved the retirement mandate with a 22-20 vote on September 9. While the mandate did make its way into the budget bill, the proposal may still be debated and potentially altered during the markup sessions. Lawmakers plan to pass the budget through a process of reconciliation, which requires unanimous support from Democrats, even if no Republicans vote in favor.

Low-Cost, Flat-Fee 401(k)s With Ubiquity

Ubiquity is a low-cost, flat-fee small business 401(k) administrator with more than 20 years of experience helping employers and entrepreneurs build their retirement benefit plans. We offer traditional and Roth 401(k) plans, as well as SIMPLE, Solo, and Safe Harbors, all tailored to best align with your needs.

A 401(k) can be a great tool for talent attraction and retention, as well as a vehicle to meet your own personal retirement goals. Contact us to explore your options for small business retirement plans before the mandate goes into effect.

How Are Small Businesses Doing in 2021?

Dylan Telerski / 25 Oct 2021 / Business

Small businesses operating during the pandemic in 2020 faced a challenge like no other. Forced closures, employee quarantines, new health guidelines, and uncertainty about what’s coming next strained finances and prompted business owners to make significant changes in how they operate and find creative solutions to stay competitive.

Small businesses are innovative and resilient.

Despite all the setbacks and obstacles of 2020 and early 2021, small businesses have proven to be tough and resilient. According to a Bank of America study, 60% of businesses expect their revenue to increase this year, a number that is nearly double that from last year. Additionally, 62% of businesses polled implemented new digital tools to better adapt to conditions during the pandemic, many of which they expect will continue into the future. These business strategies include:

• Interacting with employees virtually
• Accepting more cashless payments
• Connecting with customers virtually
• Expanding social media presence

Other innovative strategies that enabled small business owners to survive include:

• Implementing innovations
• Reducing budgets
• Temporarily closing and/or limiting operating hours
• Implementing new practices like remote work / curbside pickup / delivery

It is estimated that at least half of small business owners in the U.S. took an EIDL or PPP loan to buoy their finances in the interim.

Ecommerce remains robust.

Shoppers have embraced online shopping. E-commerce grew an estimated 44 percent to $861 Billion in 2020, according to Digital Commerce 360.

Customers would rather give locally.

Americans have a lot of love for small businesses. When given the chance, 83 percent of consumers say they prefer to purchase from a local business, rather than a large corporation. Similarly, 84 percent of people said they’d pay more to support the local business.

Hiring is extremely difficult.

As the economy recovers, many workers have elected to stay home and wait it out, collecting government benefits instead. More than 40 percent of jobs are not being filled, despite companies offering higher wages, signing bonuses, remote options, paid leave, and flexible hours.

401(k) plans remain a top benefit.

The 401(k) retirement savings program is one perk that has remained consistently popular and almost expected. Next to health insurance, small business 401(k)s are the most common benefit – topping life and long-term disability insurance.

Almost half of small business owners offer retirement plans to their employees, and one-third of small business owners expect to introduce the benefit within the next 12 months. Not only do employers feel responsible for the overall wellbeing of their employees, but 76 percent of employees believe their employers bear some degree of responsibility to make it easy for them to save for retirement.

The past year has seen many ups and downs, but just 11.5 percent of small business plans reduced or suspended their 401(k) plan matching contribution. By comparison, four times as many small business employers made changes to 401(k) plans during the Great Recession of 2008-2009.

Suspending the match directly correlated with a decrease in plan participation and deferral rates; 72.9 percent of companies that suspended the match saw declines in participation, compared to 14.4 percent of companies that maintained a consistent plan.

On the bright side, 60 percent of those who reduced or suspended their 401(k)s say they plan to reinstate the contributions in 2021, and by May 2021, 30 percent had already done so.

It’s never been more affordable for small business employers to offer a retirement savings plan, especially when they work with Ubiquity, a leading administrator that works exclusively with small enterprises. Companies can receive up to $5,000 per year in tax credits for the first year to offset the cost of a new plan. They can receive another $1,500 over three years for choosing “auto-enrollment” as an option, as well as write off any matching contributions made to employee accounts from their taxable profits.

Contact Ubiquity to learn how to start a 401(k) plan for your small business. We have provided affordable, pay-as-you-go, flat-fee retirement savings plans to small businesses and solopreneurs for over two decades!