Category: Business

Find easy to understand Business Information relating to 401(k) plans and from Ubiquity Retirement + Savings. Find easy to understand rules and regulations, along with tips and advice from our team of 401(k) business experts. Call Ubiquity today for a Free Consultation at 855.466.5825.

Small business employers and employees with a 401(k) plan can save more in 2023 in more ways than one:

Increased Savings Opportunity: The IRS has increased annual contribution limits to help you can more. You may want to consider adjusting your paycheck deduction in accordance with the increased limit and to an amount that works for you.

Smart Savings Strategy: Ubiquity plans have defaults to include bonus pay in employee contributions because the bonus is included in compensation on W2 forms. Employers may make alternate arrangements in writing with employees who choose other options. Employees can also change their deduction online for a specific payroll.

Lower Your Taxes: Any money you contribute to a 401(k) has taxes deferred until withdrawal in retirement, so your taxable income is reduced by the amount you contribute to your 401(k)!

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 2023 income tax burden as well.

How to save more for retirement with a 401(k) in 2023

The IRS 401(k) savings limit increased $2,000 in 2023 to $22,500. The catch-up contribution for those age 50 and over will increase by $1,000 in 2023, letting those who qualify add another $7,500 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 lower your annual taxable income. 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 $43,500 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 $66,000 in 2023. Your spouse may join the plan, potentially bringing your household maximum to $132,000. The $7,500 catch up contribution (for individuals age 50 or older) is allowed in addition to these maximum limits.

IRA limits are also increasing for 2023. The new maximum for savers age 49 and younger is $6,500. Those age 50 and older can put away an additional $1,000. Using a 401(k) instead of an IRA can help you save more and combat any inflation.

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.

How much should I set aside to max out my 401(k) in 2023?

Investors under age 50 who are on a biweekly pay schedule will need to save approximately $845 per paycheck to reach the $22,500 retirement plan contribution limit in 2023.

Anyone 50 or older looking to capitalize on the catch-up bonus will need to save approximately $1,153 per paycheck.

What strategies do people use to maximize retirement savings?

There are numerous strategies that may help you save more for retirement in 2023, such as:

  • Consider setting up an automatic deduction from your paycheck directly into your retirement account, so the savings happen without you even having to think about it.
  • Set up an automatic transfer of profit shares and bonuses into your 401(k) through paycheck deduction
  • Examine your monthly spending carefully and create a budget that helps you pay down any credit card debt so you can escape those pesky interest rates
  • Cancel unnecessary or unused membership subscriptions
  • Use shopping apps to take advantage of sales and promotions to save money on costs that have been hit by inflation (hello, $8 carton of eggs)

How can I change my 401(k) deferral elections in 2023?

Employees can log in to their Ubiquity account at any time modify their deferral election. Sponsors will receive notification or check their employer dashboard to review the respective updates so they can relay those changes to the payroll provider.

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.

 

If your employer does not offer a 401(k) match, you still have lots of options available to help you meet your retirement savings goals. For instance, you can invest more heavily in your future by contributing a higher percentage of your salary to your 401(k) plan or other tax-advantaged savings account. Continue reading to learn more.

Contribute to your 401(k) even without the match.

For 2023, you can contribute up to $22,500 into a 401(k). If you’re over 50 years old, you can add an extra $7,500. These amounts are taken off your taxable income for the year, so you’ll not only earn on your investments, plus interest, but you’ll reduce your tax burden as well.

Invest more heavily in your 401(k).

If your employer isn’t matching, you may want to put a higher percentage of your income into your retirement plan since you have only yourself to rely upon. If your company was providing a match, you might put in 6% of your salary and receive another 3% from your employer’s 50% match. Since you’re not getting that match, you may want to simply put 9% of your salary in yourself.

Contribute to an IRA.

Anyone can take out a self-directed Individual Retirement Account. Even if you have an employer-sponsored 401(k), you’ll be able to contribute funds to both. The benefit of an IRA is that the fees are low and there are unlimited investment options. The downside is that you can only contribute a maximum of $6,500 into this account (or $7,500 if you’re 50 or older), so you’ll have to put more money into your 401(k) once you hit the IRA’s annual ceiling.

Open a Solo 401(k).

You may consider opening a Solo 401(k) if you’re self-employed or earn income from freelance work or side jobs. If your employer offers a traditional 401(k), an alternate option might be to open a Roth Solo 401(k) in which you pay taxes up front in exchange for a tax-free withdrawal in retirement. You can also elect to make profit-sharing contributions to a Solo 401(k) plan.

Talk to your employer.

Talk to your employer, as you may be able to persuade your company to begin offering a match. One big advantage of employer matches is that they can be taken as deductions on the federal corporate income tax return, and are often exempt from state and payroll taxes as well. Plus, offering a match makes employers more competitive, so they can quickly recoup the expense by improving their employee retention rate.

Retirement lasts for roughly a quarter of your life. Employers and employees alike can make sure their retirement savings goals are met by starting an affordable, easy-to-manage 401(k) for small businesses. From Safe Harbor plans that avoid annual IRS testing to a Roth 401(k), we can help you find the right plan that is tailored to the needs of your business. See how simple it is to get started by contacting us today for your free consultation.

How Much Do Companies Typically Match on 401(k)

Siân Killingsworth / 9 Mar 2022 / Business

Illustration: Matching contributions

Looking for the update on company match rates for 2023? Visit How Much Do Companies Typically Match on 401(k) Plans in 2023?  

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.

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.

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.

2022 Solo 401(k) Contribution Deadline

Siân Killingsworth / 8 Mar 2022 / Business

Self employed woman saving in a solo 401k in 2021

Even though 2022 has already begun, it’s not too late to set up and make contributions to a Solo 401(k) for 2021.

The 2021 Solo 401(k) contribution deadline is the corporate tax return deadline of April 18, 2022. You may have even more time if you choose to file a corporate tax extension.

Please note that if you started your plan AFTER December 31, 2021, you won’t be able to make salary deferrals and your contributions will be limited to employer contributions. If this is the case, the maximum 2021 contribution for a new solo plan could be up to $58,000.

As for this year, the SECURE Act allows entrepreneurs and the self-employed to set up a plan as late as April 15, 2023, to meet the 2022 Solo 401(k) deadline.

What Are the Traditional Solo 401(k) Deadlines for 2022?

The precise Solo 401(k) deadlines depend upon how your business is structured:

  • For a Single LLC or C Corp: you have until April 17, 2023, to set up and contribute to a Solo 401(k) plan for 2022
  • For a Partnership LLC or S Corp: You have until March 15, 2023, to set up and contribute to a Solo 401(k) plan for 2022
  • If you request and receive a tax extension: you may have until as late as September or October 16, 2023, to establish your plan and contribute

What Are the Roth Solo 401(k) Deadlines for 2022?

There is one caveat about the extended deadlines for 401(k)s: they only apply to traditional after-tax 401(k)s. If you want to adopt a Roth 401(k) plan so that you can make pre-tax deferrals and pay no tax on the money when you take distributions in retirement, you will need to set up the plan and make all contributions by December 31, 2022.

What Are the Solo 401(k) Contribution Limits for 2022?

It’s a great year to start saving for retirement if you haven’t already, as the limits recently increased:

  • Solo 401(k) participants may contribute to their retirement plans as both “employee” and “employer”
  • As the “employee,” you may contribute up to 100% of your wages to a Solo 401(k) account if you choose
  • $20,500 is the maximum 2022 Solo 401(k) contribution limit for employees (up by $1,000 over 2021)
  • Employees age 50 and older may put in another $6,500 on top of this limit in “catch up contributions”
  • As the “employer,” you may reserve up to 25% of the business entity’s income to your 401(k)
  • The total employer/employee maximum in 2022 is $61,000 (up $3,000 from 2021)
  • If your spouse works for the business, the same allowances can be made on their behalf

Is a Solo 401(k) Plan Worth It in 2022?

A Roth Solo 401(k) lets self-employed entrepreneurs pay taxes up front to avoid paying taxes upon withdrawal in retirement. Plus, all income and gains earned from the 401(k) plan are tax-free. You’ll never have to pay tax on the money you take out during retirement because you’ve already paid it. This can be a great way to pass money on to your heirs.

Opening a Solo 401(k) plan is quick, easy, and affordable with Ubiquity. Unlike other companies, we administer your plan for one low, flat monthly rate, with no additional fees. You are free to work with a broker of your choice or choose your own investments.

If desired, you may roll over money from other accounts or set up automatic transfers to put your retirement account on autopilot.

Contact Ubiquity to take a step toward future financial freedom.

 

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!

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.

2022 IRS 401(k) Limits

Siân Killingsworth / 10 Feb 2022 / Business

deadline calendar

Whether you are a small business owner offering a 401(k) to your employees or you’re contributing to a retirement savings account for yourself, the Internal Revenue Service 401(k) contribution limits for 2022 can help guide your money management for the year.

Unlike a regular savings account, money put into a traditional 401(k), IRA, or HSA can reduce the saver’s taxable income for the year and lowers their tax bracket. The investment will generate much larger returns (11% over five years, on average) and will earn interest on the interest, too.

Current 401(k) distribution rules give you the option to wait until you turn 72 to take a Required Minimum Distribution, so 401(k)s can be a great way to build up inheritance as well as fund a comfortable retirement lifestyle.

401(k) Contribution Deadline for 2022

  • Employee 401(k) contributions for 2022 are made with each payroll up until December 31, 2022
  • Any Roth or catch up contributions must also be made by December 31, 2022
  • Solo 401(k) owners can make regular or one-time contributions on any day up until April 17, 2023 (since April 15, 2023 falls on a Saturday)
  • Corporations also have until April 17, 2023, to make employer contributions for the 2022 calendar year, unless they go on extension
  • S Corporations and Partnerships must fund employer contributions by March 15, 2023 unless they go on extension

For business owners interested in starting a new 401(k) plan in 2022, the recently-passed SECURE Act allows more time to create and contribute up to the expanded 401(k) contribution deadline. S-corps and partnerships must draw up new 2022 plans by March 15, 2023. The extended deadline is September 15, 2023.

C-corps and sole proprietorships have until April 15, 2023. If the business files for a tax extension, they could have until as late as October 15, 2023, to make contributions for the 2022 calendar year.

One exception is if you are considering a Safe Harbor 401(k); the IRS stipulates the first plan year must be at least three months to allow employees sufficient time to defer, so this provision must be added no later than October 1, 2022, to be effective for the 2022 calendar year.

What Are the 2022 401(k) Limits for Individual Contributions?

Given the 5.9% inflation we saw in 2021, the IRS increased individual contribution limits by $1,000 to:

  • $20,500 (Age 49 & under by 12/31/22)
  • $27,000 (Age 50 & over by 12/31/22)

These same contribution limits apply to 403(b) tax-sheltered annuities for public school employees.

2022 Solo 401(k) Limits and Maximum Employer/Employee Contributions

Most 401(k) plans include employer matching to a set formula or nonelective contributions up to:

  • $61,000 for those 49 & under by 12/31/22 (+$3,000 from 2021)
  • $67,500 for those 50 & over by 12/31/22

This means that if an individual contributes the maximum $20,500 this year, an employer could increase the total contribution another $40,500. Self-employed entrepreneurs may contribute as both “employer” and “employee” up to the $61,000 or $67,500 maximums likewise.

The employee compensation limit used in the savings calculation increased by $15,000 to $305,000 in 2022. A spouse may contribute to a Solo 401(k) plan, effectively doubling the household’s tax-free savings and retirement earnings.

SIMPLE 401(k) Limits for 2022

A SIMPLE 401(k) geared toward businesses with 100 or fewer employees allows the following 2022 maximum:

  • $14,000 (for those 49 & under, a $500 increase from 2021)
  • $17,000 (for those age 50 & older, with an unchanged $3,000 catch up contribution allowed)

2022 Highly Compensated Employee and Key Employee Definitions and Limits

Employers with Traditional 401(k) plans will need to know who to consider a “Highly Compensated Employee” or “Key Employee.”

  • $135,000 is the income threshold for a “Highly Compensated Employee,” an increase of $5,000 from 2021
  • $200,000 is the income threshold for a “Key Employee,” an increase of $15,000 from 2021
  • $305,000 is the annual compensation limit, up $15,000 from 2021

If you are worried about passing nondiscrimination tests every year, you may consider adding a Safe Harbor provision, which removes most of these rules, audits and tests and replaces with deferral and match non-discrimination testing and potentially, Top-Heavy requirements. The 401(k) withdrawal rules generally remain the same as with a traditional plan.

2022 Limits on IRAs

Some Americans also have IRAs to maximize their retirement savings. Limits for 2022 are:

  • $6,000 for those 49 & under with Roth or Traditional IRAs (unchanged from 2021)
  • $7,000 for those 50 & over with Roth or Traditional IRAs (unchanged from 2021)

Modified Adjusted Gross Income limits apply to IRA holders:

  • For full deductibility of Traditional IRAs, filing single, in 2022: $78,000 (increased $2K since 2021)
  • For full deductibility of Traditional IRAs, filing joint, in 2022: $129,000 (increased $4K since 2021)
  • Full Traditional IRA deduction with a non-working spouse in 2022: $214,000 (increased $6K over 2021)
  • If neither participant or spouse is enrolled in a workplace plan: there is no income limit for deductions
  • For partial Roth IRA deductibility, filing single, in 2022: $129,000-144,000 (increased $4K since 2021)
  • For partial Roth IRA deductibility, filing joint, in 2022: $204,000-$214,000 (increased $6K since 2021)
  • You cannot contribute to a 2022 Roth IRA if your individual income is above $144,000
  • You cannot contribute to a 2022 Roth IRA if your joint income is above $214,000

2022 Limits on HSAs

Health Savings Accounts are another great option for employees to set aside money that reduces taxable income, up to:

  • $3,650 for individuals with Health Savings Accounts (+$50 from 2021)
  • $7,300 for families with Health Savings Accounts (+$100 from 2021)
  • Additional $1,000 for those age 55+ with Health Savings Accounts (unchanged from 2021)

Start Your Own Easy, Low-Cost 401(k) with Ubiquity

Ubiquity is a small business 401(k) plan provider offering full administrative support for employers and employees. Since 1999, we have operated on a low, flat monthly fee model that lets you grow your business without incurring greater 401(k) expenses.

Contact us to learn about starting a new 401(k), switching to a different type of plan, adding a Safe Harbor provision onto an existing plan, for information on 401(k) withdrawal rules, or to learn how you can maximize your contributions in 2022.

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.

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

Siân Killingsworth / 10 Feb 2022 / Business

Blog Illustration: Saving money in your 401(k) in 2021

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.

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.

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?

Siân Killingsworth / 25 Oct 2021 / Business

2021 small 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!

Big changes are potentially afoot for retirement plans across America.

The proposed Securing a Strong Retirement Act of 2021, or SECURE Act 2.0, unanimously passed in the House Ways and Means Committee on May 5th, 2021. Next, House members will vote and send the bill onto the Senate, likely after its August recess. The Senate has its own provisions that will need reconciling before President Biden signs the final draft into law. Typically, retirement measures piggyback onto larger tax reform, budget, or end-of-year spending bills. Given the wide bipartisan support for a retirement plan bill, it’s likely some version of SECURE Act 2021 will pass this year.

What’s In SECURE Act 2.0?

Among the most impactful changes:

  • Auto Enrollment

    Employers starting new plans would be required to auto-enroll eligible workers at a savings rate of 3% of their salary, which would increase by 1% annually until their rate reached 10%. Employees would have the ability to opt-out or save even more if they desired. Old plans would be grandfathered in, and a small business 401(k) with fewer than 10 participants or startups with less than three years in business would be exempt.

  • Increased or Negated Required Minimum Distributions

    SECURE 2.0 would increase the RMD age from 72 to 73 in 2022, 74 in 2029, and 75 in 2032. Those with plans worth less than $100,000 would not be required to take out any RMD.

  • Increased Catchup Contributions

    Americans 50 years of age and older with a 401(k) or 403(b) can set aside an additional $6,500 above the annual limit as a “catchup contribution.” Those with an IRA can contribute $1,000 more. SECURE Act 2.0 would allow 401(k) and 403(b) participants to add an additional $10,000 per year at 62, 63, and 64.

  • Student Loan Matches

    For the first time, employers can count the amount of money used to pay off a student loan as a “retirement savings contribution,” eligible for the company match.

  • Roth Expansion

    Under existing law, SEP and SIMPLE plan participants cannot have a designated Roth IRA account. However, SECURE Act 2.0 allows the opportunity to make after-tax Roth contributions within the plan. All catch-up contributions would also go into a Roth account, and employers may opt to put their matching contributions into Roth, rather than pre-tax, accounts.

You can read about more of the proposed changes in greater detail on our SECURE Act 2.0 page.

How Do the House and Senate Versions Differ?

The Senate’s version of SECURE Act 2.0, titled the Retirement Security and Savings Act of 2021, contains many of the same proposals as the House bill, with a few noteworthy differences:

  • The taxpayer Saver’s Credit will be fully refundable if paid to a Roth account.
  • Spouse beneficiaries can treat inherited account balances as their own.
  • Non-spouse beneficiaries can make an indirect rollover to an inherited IRA.
  • Employer plans will be permitted to accept Roth IRA rollovers.
  • Catchup contribution increases apply to all participants 60 years of age and older (rather than just 62-64).
  • The Required Minimum Distribution requirement would be eliminated for those with less than $100,000.
  • A new tax credit for employers offering auto-enroll Safe Harbor 401(k)s with a 6% default deferral rate.

Critics Suggest Future Improvements to SECURE Act 2021

While these changes have met with broad support to expand access to retirement savings, this is unlikely to be the end of the discussion. Critics say there are a few key places where SECURE Act 2.0 comes up short.

  • Only half of small businesses offer retirement plans, which puts financial security out of reach for much of the workforce.
  • The bill doesn’t address job-hoppers who may experience long gaps of unemployment where they are unable to save anything for retirement.
  • Young workers who change jobs often cash out their retirements, pay the 10% penalty, and lose out on years of gains and compounding returns.

Universal coverage – much like the auto-IRA plans we’re seeing in New York and California – is considered by some to be a more comprehensive bridge to greater savings that can be implemented on a national level.

Ubiquity Advises Small Businesses on 401(k) Options Under Proposed SECURE Act 2.0 Bill

Questions about which small business retirement plans might be right for you? Rely on Ubiquity to help you customize a simple, low-cost 401(k) solution that perfectly fits your business’ needs. Try our free SECURE Act tax credit calculator to see how much you could save at tax time by launching a new 401(k) program in the coming year. Contact us to schedule a free consultation with a retirement specialist and explore your plan options.

Read Ubiquity's Guide to Small Business 401(k) Plans
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© 2024 Ubiquity Retirement + Savings
44 Montgomery Street, Suite 300
San Francisco, CA 94104