Category: 401(k) Resources

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

All About 401(k) Hardship Withdrawals

Siân Killingsworth / 5 Sep 2023 / 401(k) 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 401(k) 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 401(k) 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 401(k) hardship withdrawal?

To find out if your plan allows for a 401(k) 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 401(k) account statement.

Should I take a 401(k) loan instead of a 401(k) 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 401(k) 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 401(k) 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.

Considering a 401(k) withdrawal? Here’s how much you can get if you choose to cash out your 401(k):

  • Traditional 401(k) (age 59.5+): You’ll get 100% of the balance, minus state and federal taxes.
  • Roth 401(k) (age 59.5+): You’ll get 100% of your balance, without taxation.
  • Cashing out before age 59.5: You will be subject to a 10% penalty on top of any taxes owed.

Cashing out early will also result in lost growth. Therefore, it’s recommended that you let your money sit as long as possible to reap the full reward of your retirement savings. Of course, in some scenarios, it’s easier said than done to let the cash sit.

How Much Will I Lose Cashing Out My 401(k) Early?

Consider this concrete example. Let’s say your plan allows early distributions, so you decide to take $10,000 out of your 401(k). You’re taxed at a federal rate of 22% and a state rate of 8%, so you’ll end up paying $2,500 in federal tax and withholding, plus $800 to the state. That means that you will be paying a hefty $4,300 from your retirement savings to receive $5,700.

Worse yet, assuming the average 8% year-over-year returns, leaving that $10,000 in the account could make you $68,485 over the next 25 years.

Answer a few simple questions to find the optimal plan for you and your small business.

How many employees do you have?
I am a sole proprietor
(just me/or my business partner/spouse)

Or schedule a free consultation with a retirement specialist.

Should You Cash Out a 401(k) When Leaving a Job?

One option after you have left your employer is to have the plan administrator cut you a check for the full amount you’ve invested in the 401(k) plan. However, the check balance will only be for 70% of your 401(k) balance — with 20% deducted for taxes and 10% deducted as a penalty.

For most, a better alternative would be to roll the 401(k) over into a new employer’s 401(k), OR (if you don’t have a new employer yet) into a Solo 401(k) or IRA.

Arranging a custodian-to-custodian transfer within 60 days of leaving your job will not trigger a taxation event or a penalty. That way, your money can continue to grow and earn interest, and you can elect to take your regular distributions in retirement as originally planned.

Should You Take a 401(k) Loan or 401(k) Withdrawal?

Some plans allow loans from 401(k) plans as an option to get access to the fund for virtually any purpose. Maybe you want to travel, pay your child’s college tuition, put a down-payment on a new house, or cover the cost of a divorce. There are many personal reasons to consider a loan.

Generally, you can take up to 50% of the balance to a maximum of $50,000. The good news is that there is no age restriction, and there are no taxes due when you take out a loan. However, the loan must be repaid over a five-year period, with interest owed back to your account.

There is risk involved in taking out a loan. Some plans allow you to roll over a 401(k) (and loan balance) when changing employers. However, in other cases, you may have to pay your outstanding loan balance in full within 60 days of leaving an employer; otherwise, it will be considered a 401(k) withdrawal, taxed as ordinary income and subject to the 10% withdrawal penalty.

Compared to a loan, an early 401(k) withdrawal:

  • Must have an option that allows for in-service withdrawals, which may be restricted by age or hardship.
  • Will be taxed as ordinary income (while loans are generally not taxed).
  • Can be subject to a 10% penalty if you’re under 59.5 (whereas there is no restriction with loans).
  • Will not require repayment (as you would a 401(k) loan).

Are there any exceptions for getting 401(k) cash early without penalty?

You can cash out a 401(k) before age 59.5 without paying the 10 percent penalty if:

  • You become completely and permanently disabled.
  • You incur medical expenses that exceed 7.5% of your gross adjustable income.
  • You are court-ordered to give funds to a former spouse or dependent.

In some cases, 401(k) cash with the 10 percent penalty is the best option. The purchase of a primary residence, higher education tuition, preventing eviction, out-of-pocket medical expenses, or a severe financial hardship can cause you to need the funds sooner rather than later.

The case for NOT cashing out a 401(k) early

Keep in mind compound interest only works if you leave the money sitting. When you cash your retirement checks early, you’re not only subtracting that sum from your future retirement, but you’re also negating potential interest accrued over the years and losing almost 30 percent of your balance to taxes and fees.

It may be tempting to view your 401(k) as your own personal bank account, but it can be so much more if you have the willpower to let your money work harder for you.

Are you considering taking money out of your 401(k)? Try our 401(k) calculator to see if this option is right for you.

You can make withdrawals from a 401(k) without IRS penalty under several circumstances:

  • You’re age 59 ½

  • You’re rolling over your funds

  • You’ve experienced a hardship

You’re age 59 ½.

The IRS encourages long-term saving and growth by levying a 10% early withdrawal penalty on money taken out of 401(k) accounts prior to participants reaching 59 ½ years of age. However, once you reach that magic number, you can feel free to take withdrawals to cover living expenses and other financial needs.

Keep in mind that you’ll need to pay taxes on the money as you take it out (unless you have a Roth 401(k)), and any money left in will continue to earn tax-deferred or tax-free growth.

You’re rolling over funds.

If you leave, quit, or get fired from the company at age 55 or older, you can cash out that account in a lump sum withdrawal without incurring a penalty.

If you’re under 55 years of age (or if you prefer), you have up to 60 days to rollover your funds to a new 401(k) or IRA without triggering a taxable event. The best way to accomplish the rollover is to transfer the money directly from the old custodian to the new custodian to avoid having 20% automatically withheld for income tax.

If you fail to put the entire amount into a new retirement account within two months, it will be considered a distribution that is not only taxed but penalized if you’re under 59 ½.

You’ve experienced a hardship.

Penalty-free withdrawals are allowed for certain hardships, such as:

  • Medical debt that exceeds 7.5% of your Adjusted Gross Income (or 10% if you’re under 65).
  • Suffering a permanent disability.
  • Court-ordered withdrawal to pay a former spouse or dependent.
  • Being called to active duty military service.

Some 401(k) plans allow savers early access to funds to buy a primary residence, pay for educational expenses, cover funeral costs, make necessary home repairs, or prevent foreclosure – but a penalty must be paid. Each plan is different, so it’s important to ask before taking the money out.

Once you take a hardship withdrawal, you’re generally barred from contributing to the 401(k) for at least six months. You will also be limited to the principal funds you’ve contributed, and you will still have to pay taxes on traditional 401(k) funds.

Answer a few simple questions to find the optimal plan for you and your small business.

How many employees do you have?
I am a sole proprietor
(just me/or my business partner/spouse)

Or schedule a free consultation with a retirement specialist.

You agree to substantially equal periodic payments.

Some people choose to retire early once they reach 50. By agreeing to substantially equal periodic payments under Internal Revenue Code Section 72(t), you can withdraw money from your 401(k) once a year for a minimum of five years or until you reach age 59.5 – whichever period is longer.

You may use one of three methods to calculate your payments:

  • RMD Method

    Use IRS life expectancy tables to figure out your life expectancy and divide your account balance by the number of years. This is the easiest method but yields the smallest distribution.

  • Fixed Amortization Method

    Draw down your account value over the course of your life expectancy after applying an IRS-approved interest rate to your account balance.

  • Fixed Annuitization Method

    Use an annuity factor from the IRS mortality table combined with the IRS-approved interest rate.

Contact Ubiquity to inquire about 401(k) plans or if you have questions about making a 401(k) withdrawal.

From making Roth 401(k) contributions to avoiding penalties by not withdrawing funds early, there are several strategies for reducing your tax burden with a 401(k) retirement savings account.

Avoid paying additional taxes and penalties by not withdrawing your funds early.

First and foremost, you want to avoid withdrawing money from a traditional IRA before age 59.5. There is a 10% early withdrawal penalty on top of the income tax owed. However, if you leave your job at age 55, you may be able to at least take a penalty-free 401(k) withdrawal from that particular job under the “Rule of 55,” though you’ll still be hit with income tax.

You may be eligible to take out a fixed five-year loan worth up to 50 percent of your balance without incurring additional taxes – as long as you pay the money back on-time. Alternatively, you may qualify for a hardship exemption that absolves you from having to pay an IRS penalty at the very least.

Make Roth contributions, rather than traditional 401(k) contributions.

If you expect to be in a higher tax bracket in your retirement years, you may consider setting up an after-tax Roth account, where you pay your taxes sooner rather than later. When you take distributions out in retirement, you will owe no tax, as you have already paid it when you put the money into your account.

While you don’t avoid paying taxes entirely, a Roth 401(k) allows you to avoid paying tax on any earnings and interest you may have accumulated over 20-30 years.

Delay taking social security as long as possible.

Keeping yourself in a lower tax bracket will reduce the amount of your tax liability. If you don’t need that much money right now, you can live off your 401(k) withdrawals starting at age 59.5 and wait until age 70 to begin collecting Social Security benefits. Not only does it reduce the taxes owed now, but waiting until “full retirement age” also increases your payment by almost a third later on.

Answer a few simple questions to find the optimal plan for you and your small business.

How many employees do you have?
I am a sole proprietor
(just me/or my business partner/spouse)

Or schedule a free consultation with a retirement specialist.

Rollover your 401(k) into another 401(k) or IRA.

Quitting, getting laid off, or getting fired from a job that provides a 401(k) could trigger a taxable event. If you have a very small amount in the account ($1,000 or less), you may be able to leave the money where it is. If the money is between $1,000-$5,000, you may want to roll the cash over into an IRA or do a custodian-to-custodian transfer to a new employer’s 401(k) or a solo 401(k). You have up to 60 days to roll the money over without being charged tax.

Consider tax loss harvesting.

Tax-loss harvesting helps investors minimize what they pay in capital gains taxes by offsetting the amount they must claim as income. Capital losses occur any time an asset diminishes in value and is sold for a price lower than the initial purchase price. Selling investments at a loss can lower or even eliminate the amount of taxes paid on gains that year.

Tax-loss harvesting only applies to taxable investment accounts – not IRA or 401(k) accounts, which grow tax-deferred and are not subject to capital gains taxes. Married couples can claim up to $1,500 (filing single) or up to $3,000 (filing joint) per year in realized losses to offset federal income tax.

Tax-loss harvesting won’t help you avoid paying tax on a 401(k) withdrawal directly, but it can offset your overall tax obligations.

Contact Ubiquity for details on 401(k) plans, including questions on 401(k) withdrawals.

401(k) plans are for private, for-profit businesses. 403b plans are for tax-exempt organizations and non-profits.

The 401k and 403b are both tax-advantaged retirement savings plans. Both accept payroll deductions and help employees grow their retirement nest eggs through investment options like stocks, mutual funds, ETFs, and other vehicles. Both allow for employer match or profit-sharing contributions at the employer’s discretion, up to 25% of eligible payroll.

Loans can be taken out from both plans if necessary, offering a low-cost lifeline for buying your first home, paying college tuition, or staying afloat during emergency situations.

Differences between 401(k) and 403b

The plans differ in terms of:

Plan Sponsors

ANY employer, big or small, can sponsor a 401(k) if they choose to do so.

On the other hand, only non-profit companies, religious organizations, school districts, and governmental organizations may have a 403b plan.

Employee Eligibility

To be eligible for a 401(k), participants must be at least 21, with at least one year of service and 1,000 hours or more of service per year. Union employees entered into collective bargaining agreements and non-resident aliens are generally ineligible. Individual employers can mandate when employees become “vested” in the plan.

To be eligible for a 403b, there are no age or annual requirements, but employees must work more than 20 hours per work. Professors on sabbatical, union employees, and non-resident aliens are generally excluded. Only certain types of industries may have a 403b.


The 401(k)’s employer contributions are deductible for employers, whereas 403b employer contributions are tax-deferred for employees. Both accounts are pre-tax and tax-deferred for employees.

Contribution Limits

The deferral limit for both 403b and 401(k) is $20,500, with an additional $6,500 in catchup contributions allowed for those over 50.

However, the 403b plan allows workers with at least 15 years of service to add another $3,000 to their limit each year, to a maximum of $15,000.

Investment Options

A 401(k) account allows for a vast range of investments, including index funds, bond funds, large-cap and small-cap funds, real estate funds, foreign funds, and more – though they may be limited by the employer or broker selected.

By comparison, the 403b options are limited. In the past, employees could only invest in an annuity — a financial product offered through insurance companies that provides fixed payments to the annuity holder. Only recently have mutual funds become available, but not all employers offer them.


In the past, 403b plans were exempt from certain administrative processes that applied to 401(k) plans, thus lowering the overhead administrative costs. However, the limited investment options often led to higher fees than many 401(k) plans. Today may 403b plans are required to follow similar ERISA compliance requirements, so there is not much difference in administration.


Overall plan costs are determined by the types of investments selected, the level of service, and the plan provider/broker selected. Certain types of assets, like a variable annuity, may have higher fees that cut into your earnings. It’s worth exploring alternatives if you are looking to cut costs.

Which one is better?

Both options are great ways to save for retirement. However, if you find the investment choices are too limited and the costs too high for a 403b, switching to a 401(k) is always an option.

Since 1999, Ubiquity has offered flat-rate small business 401(k) plans with full transparency and no AUM fees or hidden costs. You may work with the broker of your choice to select investment options, while we administer the plan and provide full employer/employee support. Contact us to learn more.

What to Do With a 401(k) After Retirement

Siân Killingsworth / 3 Jun 2020 / 401(k) Resources

Over 50 year old career

What to do with a 401(k) after retirement is based upon your individual plan, IRS distribution rules, and your age of retirement.

Ubiquity breaks it down by age group and helps you explore your retirement planning options.

Continuing contributions (Under 72 years of age)

  • You may elect to rollover your 401(k) account into a Solo 401(k) or an IRA to continue investing.
  • This solution is possible if you still earn some type of taxable wages, salaries, commissions, tips, or passive income from self-employment. Certain types of alimony payments may also qualify.
  • Under the SECURE Act, you can now contribute to a traditional or Roth IRA for as long as you wish.
  • Your plan administrator will distribute your savings into the new account for you within 60 days.
  • You may also elect to receive a check and deposit the amount into the new account yourself.
  • Rolling over your 401(k) within 60 days will prevent you from having to pay taxes on the full amount.

Taking early distributions (Under 55 years of age)

  • You can take money out of a 401(k) now if you need it, but you will be required to pay a 10% IRS penalty and income tax on the amount you take out.
  • You are not required to take a distribution as soon as you retire. Your plan administrator will still maintain your plan if you have over $5,000 invested, thus allowing your savings to accrue.
  • You will be unable to contribute to a 401(k) held by a previous employer unless you choose to roll it over to a new 401(k) or IRA.
  • If your account balance is between $1,000 and $5,000, your company is required to roll the funds into an IRA if they are forcing you out of the plan.

Taking advantage of the Age 55 Rule (Ages 55-59)

  • You can avoid the IRS 10% early withdrawal penalty if you retire or lose your job after age 55. This tax-free distribution applies only to the money from the most recent employer you just left.
  • If you had money in an earlier 401(k) account, it is still subject to the penalty unless you wait a few years.

Taking the money on-time (Ages 59.5 – 71)

  • The penalty-free retirement age is 59 1/2, so if you have reached that point, you can begin taking regular distributions from your 401(k) in the form of an annuity, either for a fixed period or over your anticipated lifetime. You may also choose to take non-periodic lump sum withdrawals if it is your preference.
  • Unless you have a Roth 401(k), you will pay tax on the distribution as if it were paycheck income. Roth accounts allow tax-free withdrawals if the account holder is 59.5 or older and has had the account at least five years.
  • The rest of your 401(k) account balance remains invested according to previous allocations, so the performance of your portfolio will also dictate the duration of your payments to some extent.

Taking required minimum distributions (Ages 72+)

  • You are generally required to take regular or periodic distributions by April 1st the year you turn 72.
  • Some plans will allow you to defer distributions until the year after you retire if you’re still working.
  • Your distributions will be calculated based on your account balance and life expectancy.
  • You may choose to take out more than your RMD, but you cannot take out less.
  • The age for RMDs used to be 70.5, but increased to 72 in December 2019 with the SECURE Act.

The IRS isn’t the only one who calls the shots with how retirement money is taken. Companies may have their own rules about taking distributions, so it is always wise to review your plan documents, call your financial adviser, or speak with your plan provider before making any decisions.

It’s easy to be overwhelmed with options when it comes to individual retirement plans and how best to choose and manage your 401(k). Ubiquity can streamline the process and help you tailor an approach that fits your unique needs.

You have 60 days to roll over a 401(k) into an IRA after leaving a job–but there are many other options available to you in these circumstances when it comes to managing your retirement savings.

What happens to your 401(k) if you leave your job?

You have a number of options when it comes to managing your 401(k) after you leave your job:

Leave the 401(k) in the care of your former employer.

If your 401(k) balance is low – say $5,000 or less – most plans will allow you to keep the money where it is after you leave. By default, you may be able to manage the money without making changes, but your investment choices will be limited. If the money is under $1,000, the company may cut you a check to force the money out. If the money is between $1,000 and $5,000, they will likely help you set up an IRA if they are forcing you out.

Move the 401(k) to your new employer’s 401(k).

If you change companies, it’s typically no problem to rollover your old retirement plan into your new employer’s 401(k). With a little bit of paperwork, the old plan administrator can simply shift the contents of your account directly into the new plan account with a direct transfer. This custodian-to-custodian transaction is not considered taxable.

Another option is to elect to have your balance distributed to you in check format, which you can then deposit into your new 401(k) account within 60 days, without paying the income tax. If you are a sole proprietor, freelancer, or entrepreneur, you may also consider setting up your own Solo 401(k) for yourself (and potentially your spouse or a partner) at this point. If you are in the middle of a lawsuit or worry about future claims against your assets, leaving your money in a 401(k) (versus rolling over into an IRA) is going to offer better protection against liquidation.

Roll the 401(k) over into an IRA.

What if you’re not moving to a new employer immediately or your new employer doesn’t offer a 401(k)? What if your employer requires you to put in a number of years before you become “vested” and eligible to participate in their 401(k) plan?

In these circumstances, stashing your money in an IRA with the financial institution of your choice is a freeing solution. You’ll be able to choose where, how, and when you invest unless you agree to pay a broker to manage the funds for you. A direct rollover is ideal to avoid paying taxes on the amount transferred over; you have 60 days to roll your 401(k) over into the new IRA.

Answer a few simple questions to find the optimal plan for you and your small business.

How many employees do you have?
I am a sole proprietor
(just me/or my business partner/spouse)

Or schedule a free consultation with a retirement specialist.

Agree to take the distributions.

If you are retiring, you can take penalty-free distributions on your savings starting at age 59.5. If you are under age 59.5, you can still take a distribution, but you will need to pay a 10% penalty unless you meet the “hardship exemption” or “IRS Rule of 55” criteria. If you are 72 or older, you must take minimum withdrawals. Keep in mind you will need to pay income tax on the withdrawn amount – unless you set up a Roth 401(k) that you had for at least five years and paid taxes when you put the money in. If you fail to meet the five-year requirement, only the earnings portion of your distributions is subject to taxation.

Cash it out.

A lump-sum distribution will liquidate your old 401(k) account, but you will need to pay the full tax burden, and you may be subject to the 10% early withdrawal penalty. By taking the full amount, you will essentially be starting all over in saving for retirement.

Generally, it’s best to allow the money to grow in a tax-deferred account unless you are, in fact, retiring and need all of the money to meet an extreme hardship need right now.

Ubiquity is a 401(k) plan provider for entrepreneurs and small businesses. Contact us for assistance in setting up a new 401(k) or in rolling over an existing 401(k) to a new account.

What’s So Safe About Safe Harbor?

Siân Killingsworth / 11 Jun 2018 / 401(k) Resources

Sailboats in harbor

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 401(k) 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 401(k) 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.

There are many small business 401(k) 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 401(k) 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 401(k).

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

Let’s put those to rest:

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

Unfortunately, many small business owners are under the impression that 401(k) 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 401(k) plans exist that are customized for businesses with 50 or fewer employees. There are even 401(k)s built specifically for sole proprietors, known as a Solo 401(k).

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.

401(k)s 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 401(k) 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 401(k) 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 401(k) plan is a simple, effective way to save for retirement.

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Book Club: Is Your Company Learning?

Siân Killingsworth / 8 Jul 2017 / 401(k) Resources

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.

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San Francisco, CA 94104

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Talk to Sales
Schedule a Free Consultation

Contact Support
Visit our Help Center
6am–5pm PT / 9am–8pm ET

© 2024 Ubiquity Retirement + Savings
44 Montgomery Street, Suite 300
San Francisco, CA 94104