Category: Personal Finance

Motivate Your Employees to Invest in Their Futures

Siân Killingsworth / 11 Sep 2023 / 401(k) Plan Information, Personal Finance, Small Business 401k

As a small business owner, you already recognize the value of providing a strong 401(k) plan as a benefit to your team. But convincing employees to contribute to their 401(k) isn’t always straightforward. Here’s a more detailed guide on how to excite your team about their retirement options, so you create a culture where planning for the future is encouraged and valued.

To encourage your employees to participate in your 401(k) plan, here are three key selling points you can share with them:

1. Long-Term Financial Growth: The first major benefit you can discuss is the power of compounding. Explain that compounding means their money isn’t just sitting there—it’s growing. Each dollar invested generates earnings, and those earnings generate their own earnings in turn. Over many years, even small contributions can grow into a substantial sum. You can use real-world examples or calculators to show how, for instance, contributing just $100 a month could grow over 20 or 30 years. The aim is to get across the idea that a 401(k) is more than just a savings account; it’s an investment in their future.
2. Free Money Through Employer Matching: The second compelling reason to bring up is employer matching, if your plan offers it. Put it simply: this is free money that helps them build their retirement savings faster. Use clear examples tailored to your specific matching structure to show just how much they’d be leaving on the table by not participating. For instance, if you match 50% of contributions up to 5% of their salary, show them the math on what that would mean for them over a year. If your business has varied salary levels, offer a couple of examples to cover a wider range of employee incomes.
3. Tax Benefits Now or Later: Lastly, talk about the tax advantages. Make it easy to understand by saying that contributing to a traditional 401(k) reduces their taxable income for this year—meaning they pay less in taxes. With Roth 401(k) options, they pay taxes now, but they won’t have to pay taxes on it in retirement. Either way, there’s a tax benefit that might make life a bit easier.

Wrap it up by saying something like, “We’ve set up the 401(k) because we believe in all of our futures. It’s a tool that’s there to help you build a secure and comfortable retirement, and we hope you’ll take full advantage of it.”

But how do you go about achieving employee buy-in? Keep reading for our tips:

Understand and Communicate Effectively

Your first step is to make sure your employees have all the information they need. Offer regular communication that breaks down the benefits of contributing to a 401(k). For instance, explain how contributing just a small percentage of their paycheck can grow significantly over time thanks to compound interest. Hold periodic informational sessions or workshops where employees can ask questions about how the 401(k) works, what the investment options are, and how to change their contributions.

Streamline the Enrollment Process

A complex sign-up process can deter participation. Make it as straightforward as possible for your employees to enroll. Utilize platforms that offer a user-friendly interface for account set-up and management. Moreover, consider incorporating an automatic enrollment feature. This ensures that all employees are enrolled in the 401(k) plan by default but allows them to opt out if they wish to do so.

Incentivize Through Employer Matching

A powerful motivator is an employer matching contribution. Not only does this provide added benefit for your employees, but it can also reduce your business’s overall tax liability. Make sure the details of the matching contribution—like what percentage you’ll match and up to what dollar amount—are clearly communicated. To boost participation even further, you could gradually increase the matching contribution over time.

Invest in Financial Education

Often, people don’t contribute to retirement plans because they don’t understand the basics of personal finance. Arrange workshops or seminars and offer online tools to help employees make sense of personal finance concepts. For example, you could host a workshop that uses real-life scenarios to show how different contribution rates could affect retirement savings over the long term.

Promote a Retirement-Saving Culture

Show your team that you’re also committed to retirement planning. Share your own experiences or tips on how you’re preparing for retirement to normalize the conversation around this crucial topic. Additionally, consider celebrating milestones or achievements related to retirement savings. For instance, an “Employee of the Month” could be someone who increased their 401(k) contributions recently.

Offer Transparency and Regular Updates

It’s vital to keep your employees in the loop about their retirement accounts. An online portal can provide easy access to account details, while periodic statements give a snapshot of their savings growth. Showcase examples or stories of employees who’ve reached their retirement goals through consistent savings, further motivating the team to get involved.

Utilize Professional Help

Navigating the intricacies of a 401(k) plan can be complex. Partnering with a retirement plan provider who specializes in small business plans can be invaluable. Look for those who offer personalized support and tools designed to engage employees, simplify the plan’s administration, and ensure you’re in compliance with regulations.

By implementing these strategies, you’re not just helping your employees secure their financial futures—you’re also contributing to the long-term success and reputation of your business. An engaged and financially secure workforce is beneficial for everyone involved.

Small Business 401(k): Hardship Withdrawals Explained

Siân Killingsworth / 11 Sep 2023 / 401(k) Plan Information, Personal Finance

Owning a small business comes with a lot of responsibilities, including planning for the future. It’s important to save for retirement, but there are times when life throws a wrench into your financial plans. That’s when you may consider options like a hardship withdrawal from your 401(k). The following aims to give you a thorough but easy-to-understand overview of hardship withdrawals. We’ll explore what it is, its pros and cons, and what you should consider before taking this significant step.

What is a Hardship Withdrawal?

In simple terms, a hardship withdrawal allows you to take some money out of your 401(k) retirement plan if you find yourself in a tough financial situation that requires immediate action. This option is regulated by both the IRS and individual 401(k) plan guidelines to ensure it’s used only for urgent and substantial financial needs.

When Can You Make a Hardship Withdrawal?

The IRS has identified several circumstances where a hardship withdrawal would be allowed. Generally, you can use this option for:

• Unexpected Medical Bills: If you or a family member falls seriously ill and you’re facing hefty medical bills, a hardship withdrawal can be a lifesaver.
• Buying a Home: If you’re buying a home to live in (this doesn’t include a vacation home or investment properties), you can tap into your 401(k).
• Education Expenses: This includes school fees and tuition for post-secondary education for you or your dependents.
• Preventing Home Loss: If you’re on the verge of eviction or foreclosure, a hardship withdrawal can help you keep your home.
• Funeral or Burial Costs: If you have to arrange a funeral or burial for a family member, you can use this money to cover the costs.

Advantages of Hardship Withdrawals

1. Immediate Financial Relief: One of the most significant advantages of a hardship withdrawal is that it provides quick financial help when you’re in a bind.
2. No Early Withdrawal Penalty: If you’re under the age of 59 ½, taking money out of your 401(k) usually comes with a 10% penalty. This penalty is waived for hardship withdrawals, making it easier on your wallet.
3. Freedom of Usage: The money you withdraw isn’t a loan, so there’s no need to worry about monthly repayments. This can reduce stress during an already stressful time.
4. Straightforward Application: Most 401(k) providers have a streamlined process for applying for a hardship withdrawal. This makes it easier for you to get the money you need without jumping through too many hoops.

Disadvantages of Hardship Withdrawals

1. Lower Retirement Savings: The most obvious drawback is that you’ll have less money saved for your retirement. This affects not just the total amount you’ll have, but also the interest that the withdrawn money could have earned over time.
2. Tax Liabilities: Although you escape the 10% early withdrawal penalty, you’ll still have to pay regular income tax on the withdrawn amount, which could bump you into a higher tax bracket for the year.
3. Pause in Contributions: Some 401(k) plans require you to stop adding new contributions for six months or so after a hardship withdrawal. This could delay your retirement savings plan and goals.
4. Documentation: You’ll need to prove that you’re facing a financial emergency, and this can sometimes require a good amount of paperwork, which can be time-consuming.

Alternatives and Final Thoughts

Before deciding on a hardship withdrawal, it’s essential to consider other options that could be less disruptive to your long-term financial planning. Could you take out a loan at a reasonable interest rate? Or could you adjust your budget to create an emergency fund over time?

While a hardship withdrawal can offer a financial lifeline in pressing situations, it should be carefully considered. If you’re contemplating such a withdrawal, consulting a qualified financial advisor can provide valuable insights tailored to your circumstances. They can help you weigh the pros and cons based on your specific financial situation and long-term goals.

Saving Enough for Retirement? Use a Retirement Calculator to Find Out

Siân Killingsworth / 8 Sep 2023 / 401(k) Plan Information, Personal Finance

Planning for retirement may often feel like a daunting task, but the good news is that it doesn’t have to be. As a small business owner, you’re in a unique position where you control not only your own financial destiny but also have a role in your employees’ future.

This might seem like a lot of responsibility, and it is, but it’s also an opportunity to empower yourself and your team with the right tools and knowledge. One such tool, which often proves to be invaluable in retirement planning, is a retirement calculator. Here’s how you can maximize its benefits.

The Benefits of Using a Retirement Calculator

1. Comprehensive Financial Snapshot

One of the key advantages of using a retirement calculator is that it gives you a complete view of your financial life. Think of it as a financial MRI—it shows you everything you need to know: your income, expenses, assets, and liabilities. This is an incredibly useful starting point because it helps you understand where you currently stand. With this snapshot, you can then better determine what changes might be needed to enhance your retirement savings effectively.

2. Personalized Retirement Goals

We all have unique aspirations for what we’d like our retirement to look like. Maybe you dream of traveling the world, or perhaps you want to enjoy a simple, peaceful life with family. Your retirement calculator helps you put a realistic price tag on these dreams. By entering key details like your intended retirement age, desired lifestyle, and existing financial commitments, you’ll get a personalized estimate of how much you’ll need to save each month.

3. Explore Various Retirement Savings Plans

As a small business owner, your options aren’t limited to just a traditional 401(k). Depending on your business size, structure, and revenue, there may be a variety of retirement plan provisions that can suit your needs. (Here’s why you should consider offering a small business retirement plan.)

There is a plethora of choices available to small business owners such as Safe Harbor plans, which can help you avoid certain IRS tests each year, new comparability plans, which allow business owners to reward certain groups of employees more generously than others, and individual (or solo) 401(k) plans that provide flexibility to maximize contributions for business owners without employees.

Each of these options comes with its own set of advantages and regulations, giving you the latitude to choose a plan that aligns best with your business needs and retirement goals. Learn about more plan types here.

4. Investment Strategies for Long-term Growth

Investing is integral to retirement planning, and a retirement calculator can offer insights into how different investment strategies can impact your savings over time. Whether you’re inclined toward a conservative approach or you’re willing to take some calculated risks, the calculator gives you a glimpse of how your investment choices can grow over time, helping you make informed decisions.

5. Adaptability for Life’s Unexpected Turns

Life is not static; it changes and so will your needs and plans. Perhaps your business scales rapidly, or you go through significant life events like marriage or having children. A retirement calculator isn’t a one-time-use tool. You can—and should—go back to adjust the input data whenever life circumstances change. This way, you’re not just planning for a single retirement scenario; you’re continually adapting your plan to fit your life.

How to Effectively Use a Retirement Calculator

Step 1: Gather All Relevant Financial Data

Before you sit down with any calculator, you’ll want to gather all necessary financial data. This means taking stock of your income streams, tallying your monthly and yearly expenses, and having a clear understanding of your existing savings and investments. The aim is to get a detailed, accurate view of your financial health, as this will make your retirement planning more precise and actionable.

Step 2: Choose a Calculator Designed for Small Business Owners

When selecting a retirement calculator, go for one that takes into account the specific needs and challenges of small business owners. There are numerous free and paid options available online, many of which are offered by reputable financial institutions. Choosing a specialized calculator ensures that the unique elements of your financial life are accounted for in the projections.

Step 3: Enter Your Financial Information

With all your financial data at hand, the next step is to enter it into the calculator. Be as detailed and accurate as possible; precise input leads to reliable output. It’s your future we’re talking about, and the more accurately you can lay out your current financial landscape, the better your roadmap for retirement will be.

Step 4: Understand the Projections

Once the calculator has processed your data, spend some time understanding the projections it has provided. You’ll likely see estimates for monthly savings needs, potential growth of investments, and possibly even an estimated “retirement readiness” age. Take these figures seriously—they’re based on the detailed financial picture you’ve provided and are key to reaching your retirement goals.

Step 5: Take Timely Action

The calculator’s insights are only as useful as the actions they inspire. Use the projected figures to adjust your current savings strategy, reallocate investments, or change your planned retirement age. If the projections indicate that you’re on the right track, that’s great! It’s validation that you’re making wise financial choices. If there are gaps, now is the time to address them.

Your Takeaway

Remember, retirement planning isn’t a one-time event; it’s an ongoing process that you’ll want to revisit and adjust as you go along. And that’s okay. What matters most is that you’ve taken the significant first step of engaging with your future financial needs.

With the right tools, such as a retirement calculator, and a commitment to regular reviews and adjustments, you’re on the right path to a secure and fulfilling retirement—for yourself and potentially for your employees as well. So take a moment to congratulate yourself; you’re making the right choices to ensure a more stable and enjoyable future.

401(k) Loans: A Brief Guide

Siân Killingsworth / 28 Jul 2023 / 401(k) Plan Information, Personal Finance, Small Business 401k

Whether you’re a small business owner, an employee, or just someone with a 401(k), you’re in the right place. Your 401(k) can be a valuable tool for securing your financial future, but sometimes unexpected events happen (hey, that’s life!). If you find yourself contemplating borrowing from your 401(k), it’s important to weigh the pros and cons before you make a decision. So we’re breaking down when you should – and shouldn’t – borrow from your retirement account.

What is a 401(k) Loan?

Before you borrow from your small business 401(k), it’s important to understand what you’re doing. A 401(k) loan is a borrowing option available to any individual who has a 401(k). It allows you to borrow some of the funds in your retirement account and repay it with interest over a specified period of time.

If you’re a small business owner, look for a small business 401(k) with flexibility around borrowing and changing contribution amounts.

How Does it Work?

In short: You’re borrowing money from yourself.

Essentially, the loan amount is limited to a percentage of your retirement account’s vested balance, and is paid back through regular installments, usually deducted from your paycheck with interest.

Pros of Borrowing from Your 401(k)

Quick access to funds.

• Borrowing from your 401(k) can provide a fast solution when you’re facing a financial crunch or unexpected expense. After all, the money is yours, so it’s an effective solution for time-sensitive situations

No credit check or approval process.

• Unlike traditional loans, borrowing from your 401(k) does not require a credit check or a lengthy approval process. This can be a significant advantage if you have less-than-perfect credit.

Competitive interest rates.

• The interest rates on 401(k) loans are often lower compared to other borrowing options, such as credit cards or personal loans.

Repayment benefits you.

• When you repay the loan, the interest payments go back into your 401(k) account, helping you to recoup some of the money you borrowed.

Cons of Borrowing from Your 401(k):

Impact on retirement savings.

• By borrowing from your 401(k), you’re potentially tapping into the savings you’ve diligently set aside for retirement.
• This could hinder your long-term financial security if the borrowed amount is not replenished promptly.

Limited growth potential.

• The money you borrow from your 401(k) is temporarily removed from investments, which means it won’t benefit from potential market gains during that period.
• You’ll also miss out on earning compound interest during the payback period.

Repayment challenges.

• If you leave your job or your business fails, the loan may become due in full, which can create a financial burden.

Tax implications.

• If you’re unable to repay the loan within the specified timeframe, the borrowed amount could be subject to income tax and potentially early withdrawal penalties.
• If you take a full withdrawal instead of a loan, you’re subject to a 10% early withdrawal penalty – and the money is taxed as income, potentially costing thousands.

In a financial emergency, borrowing funds from your small business 401(k) should be used as a last resort because of the drawbacks, but we understand that sometimes financial challenges don’t present other options.

While borrowing from your 401(k) can be an option in certain situations, it’s important to carefully consider the potential pros and cons. By assessing your financial needs, exploring alternatives, and having a clear repayment strategy, you can make an informed decision about borrowing from your small business 401(k). Remember, it’s crucial to strike a balance between present financial needs and securing a comfortable retirement. Plan wisely and consult with a financial advisor if needed, so you can make the best choices for your financial future.

Please see Important Information for details.

What to Do if Your Employer Doesn’t Offer a 401(k): Building a Secure Financial Future 

Jason Gross, AIF ®, CRPS / 25 Jul 2023 / 401(k) Plan Information, Personal Finance, Ubiquity Insights

As employees, we understand the importance of securing our financial future, and having a retirement plan like a 401(k) plays a vital role in that endeavor. We know that approaching our employers to discuss implementing a 401(k) plan can be daunting. Never fear – we’re here to guide you through initiating the conversation with your boss.

We also have suggestions for effective ways to save for emergencies in the absence of a 401(k) plan. Building a solid financial safety net is just as crucial as planning for retirement, and we’ll provide you with practical steps to achieve both.

Understanding the Benefits of a 401(k) Plan

One of the best ways to get what you want is to help your employer understand how they can benefit from offering you a 401(k). Doing so can bring many benefits to the business overall, fostering positive outcomes for both you and the business owner. Help your employer understand the key advantages a 401(k) delivers by sharing this:

1. Government will cover the costs: The federal government wants to help employees start saving for retirement. They’re so serious about this they’ll cover the costs for your employer to offer you a new 401(k) plan for three years! Additional tax credits are available to business owners for automatically enrolling employees and providing matching contributions.
2. Tax Advantages for Employers: Offering a 401(k) plan provides small business owners with tax incentives. Employer contributions are typically tax-deductible, reducing the overall tax burden. Matching contributions can also be considered deductible business expenses.
3. Attracting and Retaining Top Talent: A comprehensive benefits package, including a 401(k) plan, is crucial for attracting and retaining skilled employees. Retirement benefits are the second most-requested benefits after health. It sets your business apart and demonstrates a commitment to employees’ long-term financial security.
4. Enhanced Employee Retirement Readiness: A 401(k) plan empowers employees to save effectively for retirement. A recent AARP study showed employees are 15 times more likely to save for retirement when offered through a workplace!
5. Improved Employee Loyalty and Productivity: Offering a 401(k) plan fosters loyalty among employees, leading to increased motivation and productivity and happier employees. It positively impacts the overall performance of your business.

Initiating the Conversation with Your Employer

Approaching your boss about implementing a 401(k) plan doesn’t have to be intimidating. Here are some friendly tips to navigate the conversation:

• Educate yourself: Research the benefits of a 401(k) plan and gather information on associated costs for the employer. This knowledge will help you present a well-informed case.

Example: “Hi [Boss’s Name], I’ve been doing some research on retirement planning options and came across the benefits of a 401(k) plan. Did you know the federal government will cover the costs of a new plan now? There are also tax benefits for you!  I believe it could be a great asset for both the company and employees like me.”

• Schedule a meeting: Request a meeting with your boss at a time that works for both of you. Choose a moment when they are likely to be available and not overwhelmed with other tasks.

Example: “Could we schedule a meeting to discuss the possibility of introducing a 401(k) plan at our workplace? I believe it’s an important topic that could benefit the entire team, and I’d love to share my ideas and learn more about the company’s perspective.”

• Prepare a compelling case: Highlight the advantages of a 401(k) plan, such as improved employee retention, tax benefits, the fact the government is covering the costs and enhanced financial well-being. Relate these benefits to the company’s objectives.

Example: “Implementing a 401(k) plan could help us attract and retain top talent, as many employees are seeking comprehensive retirement benefits. Moreover, it offers potential tax benefits for the company and demonstrates our commitment to supporting employees’ financial security. Plus the cost to you after tax credits is minimal if anything.”

• Be open to compromises: Acknowledge any concerns your boss may have regarding costs or administrative burdens and express your willingness to explore different options or contribute to the plan’s setup and management.

Example: “I understand that implementing a 401(k) plan involves certain costs and administrative aspects. I’d be happy to assist in researching providers or contributing my time to ensure a smooth setup and management process.”

Saving for Emergencies in the Meantime

While waiting for a 401(k) plan to be offered in your workplace, it’s crucial to build an emergency fund. Here are the steps you could take:

• Set a savings goal: Aim for three to six months’ worth of essential expenses. Calculate a reasonable target based on your monthly budget.

Example: “My goal is to save six months’ worth of living expenses, around [X dollars]. This safety net will help me navigate unexpected financial situations.”

• Automate your savings: Set up automatic transfers from your paycheck to a separate savings account. This ensures consistent contributions to your emergency fund.

Example: “I’ve set up an automatic transfer of [X dollars] to a dedicated emergency savings account. It’s an effortless way to build up my emergency fund over time.”

• Minimize expenses and maximize income: Cut back on unnecessary spending and redirect savings towards your emergency fund. Explore side gigs or freelance work to boost your income.

Example: “I’ve reduced unnecessary expenses like dining out, redirecting those savings to my emergency fund. I’ve also started freelancing to increase my income.”

• Prioritize debt repayment: Focus on paying off debts to free up more money for your emergency fund.

Example: “I’m actively reducing my debt by prioritizing high-interest loans and credit card balances. Paying off these debts will increase my emergency savings.”

• Explore high-yield savings accounts: Open an account with competitive interest rates to help your emergency fund grow.

Example: “I’ve opened a high-yield savings account to maximize growth. It offers a higher interest rate, ensuring my money works harder.”

Securing your financial future is a shared responsibility. Discuss the 401(k) plan with your boss and focus on building your emergency fund. Approach the conversation professionally, highlighting the benefits of a 401(k) for both employees and employers. Your commitment to financial well-being today ensures a more secure future for you tomorrow!

Please refer to Important Information for details.

The Impact of Market Volatility on Retirement Planning

Adam Bush, QKA, AIF® / 29 Jun 2023 / 401(k) Plan Information, Personal Finance

(& How to Set Yourself Up for Success)

Retirement planning is critical to securing a comfortable and financially stable future. However, market volatility can significantly affect the path to a successful retirement. So how do you contingency plan to retire during a tough market?

Step one: Take a deep breath, and start saving ASAP. Remember: Time in the market is more important than timing the market.

Understanding Market Volatility and Retirement

First, a crash course in market volatility. Economic indicators, geopolitical events, investor sentiment, and corporate performance all influence financial markets. Market volatility arises when these factors cause significant fluctuations in asset prices, leading to increased risk.

Uncertainty in the market impacts retirement planning in several ways. It can cause a significant decline in investment portfolios, meaning retirees relying on their investments may face reduced savings. Market downturns also diminish the returns on investments, potentially jeopardizing long-term goals. We highly recommend taking steps to recession-proof your small business 401(k).

Challenges Faced by Retirees in Volatile Markets

One of the primary concerns is the sequence of returns risk. This risk refers to the order in which investment returns are realized. When retirees begin their retirement, a decline in the market can have a negative impact.

This is because they are forced to sell their assets at lower prices in order to cover their living expenses. This negative effect can last for a significant period of time. Check out these 4 tips for managing your 401(k) during a recession.

Strategies for Retirement Planning in the Face of Market Volatility

1. Diversification and Asset Allocation

Diversification involves spreading investments across different asset classes, such as stocks, bonds, and real estate, to reduce risk. Asset allocation determines the ideal mix of these asset classes based on individual risk tolerance and goals.

2. Long-Term Investment Approach

Retirement planning should adopt a long-term perspective, focusing on the overall goals and objectives rather than short-term market fluctuations. Everyone can benefit from the potential growth of their savings over time by staying invested for the long haul.

3. Seek Professional Financial Advice

Advisors can help you and your small business’s employees understand their risk tolerance, develop appropriate investment strategies, and make informed decisions to preserve and grow their retirement savings.

4. Regular Portfolio Reviews

Periodic adjustments may be necessary to rebalance the portfolio and maintain an appropriate asset allocation.

Mitigating the Impact of Market Volatility on Retirement Savings

Beyond investment strategies, there are additional measures you can take to help mitigate the impact of market volatility on your retirement savings:

1. Emergency Fund

Having readily available cash can help cover unexpected expenses without the need to tap into retirement savings.

2. Insurance Coverage

Having adequate insurance coverage, including health, life, and long-term care insurance, can protect retirees from unexpected medical expenses and provide a safety net during turbulent times.

3. Contingency Planning

Developing contingency plans can help retirees prepare for unexpected events. This can involve identifying alternative income sources or adjusting retirement expenses if necessary.

Adapting Retirement Plans in Times of Market Turmoil

1. Flexibility in Withdrawal Strategies

Adjust your withdrawal strategies to align with market conditions. By adopting a flexible approach, you can withdraw less during downturns so you keep the maximum amount in your 401(k) earning compound interest.

2. Adjusting Retirement Timeline

Delaying retirement by a few years can provide additional time to accumulate savings and ride out market fluctuations.

3. Exploring Alternative Income Sources

During volatile markets, retirees can explore alternative income sources to supplement their retirement savings. This can include rental income, income-generating hobbies, Social Security and more.

The Importance of Regularly Reviewing Retirement Plans

Lastly, it’s crucial for retirees to regularly review and update their retirement plans to adapt to changing circumstances. Factors such as risk tolerance, goals, and financial situations may change over time. Key considerations for regular plan reviews include:

1. Reassessing Risk Tolerance

As retirement progresses, risk tolerance may evolve. It’s important to reevaluate and adjust the investment portfolio to align with changing risk preferences.

2. Updating Goals and Objectives

Retirement goals and objectives may shift due to life events or changes in circumstances. Regular reviews ensure that retirement plans remain relevant and aligned with evolving needs.

3. Adjusting Investment Strategies

Market volatility may warrant adjustments to investment strategies. Consult with a financial advisor to evaluate whether asset allocation or investment vehicle changes are necessary.

Ubiquity is not a registered investment advisor, and the information provided herein should not be considered legal or tax advice. We recommend consulting with your financial planner, attorney, and/or tax advisor for personalized advice. 

Pros and Cons of Taking Out a 401(k) Loan for Emergency Expenses

Andrew Meadows / 28 Jun 2023 / 401(k) Plan Information, Personal Finance

If you’re a small business owner, employee, or just someone facing a financial emergency and wondering if you should take a 401(k) loan from your small business retirement account, this one’s for you. While this may provide a temporary (or even longer-term) solution to your financial needs, it’s important to weigh the pros and cons before you pull money from your retirement account.

Understanding 401(k) Loans

What is a 401(k) loan?

A 401(k) loan is a borrowing option available to individuals who have a 401(k). It allows you to borrow a portion of the funds you have contributed to your 401(k) and repay it with interest over a specified period of time.

If you’re a business owner, look for a small business 401(k) with flexibility when it comes to borrowing and changing contribution amounts.

How does it work?

When you take out a 401(k) loan, you essentially borrow money from yourself. The loan amount is typically limited to a percentage of your vested balance in the 401(k) account. You pay it back through regular installments that are usually deducted from your paycheck.

Pros of Taking Out a 401(k) Loan for Emergency Expenses

Quick access to funds

401(k) loans can be processed relatively quickly, allowing you to address your emergency expenses promptly.

No credit check

This can benefit individuals with a less-than-perfect credit history, as your credit score does not determine your eligibility for the loan.

Lower interest rates

Compared to other forms of borrowing, such as personal loans or credit cards, 401(k) loans often have lower interest rates. The interest payments also go back into your account, making it a more cost-effective option for interest expenses.

Repayment flexibility

401(k) loans typically offer flexible repayment options. You can choose the loan duration, usually one to five years, and make regular payments through automatic deductions from your paycheck.

Cons of Taking Out a 401(k) Loan for Emergency Expenses

Potential reduction in retirement savings

When you borrow from your 401(k), the borrowed amount is no longer invested in the market, which means you miss out on potential market gains and compound interest.

Limited borrowing capacity

Some 401(k) loans have limitations on how much you can borrow. Although some providers allow loans up to the total amount of money in your account, for other providers, the maximum loan amount is typically capped at either $50,000 or 50% of your vested account balance, whichever is lower. Make sure you check with your provider what is permitted.

Repayment challenges

Loan repayments are deducted from your paycheck, reducing your take-home pay during the repayment period, so if you’re borrowing from your 401(k), make sure you’ve budgeted for a lower take home income.

Penalties and taxes for defaulting

Defaulting on a 401(k) loan can result in severe penalties and taxes. For example, the outstanding loan balance could be treated as a distribution, subjecting you to income tax and potentially early withdrawal penalties if you are under the age of 59½.

Opportunity cost of missed market gains

By borrowing from your 401(k), you miss out on potential market gains that your retirement savings could have generated. This opportunity cost should be carefully considered before opting for a 401(k) loan.

Alternatives to 401(k) Loans for Emergency Expenses

Emergency savings fund

Experts recommend having between three and six months of income saved up (just in case).

Personal loans

If you have a good credit history, obtaining a personal loan from a financial institution may offer competitive interest rates and more favorable terms than a 401(k) loan.

Credit cards

Credit cards can be a convenient short-term solution for emergency expenses–if you use them responsibly.

Home equity loans

If you own a home, leveraging the equity you have built can be an option for accessing funds in times of emergency (and often has a lower interest rate).

Factors to Consider Before Taking Out a 401(k) Loan

Before deciding to take out a 401(k) loan for emergency expenses, it’s essential to consider several factors, including financial stability, the impact of a loan on your retirement goals, and the limitations of borrowing. Weigh the pros and cons, as well as the alternatives–and if you still have questions, our small business 401(k) experts are always here to help (and here are some reasons you should chat with them).

Ubiquity is not a registered investment advisor, and the information provided herein should not be considered legal or tax advice. We recommend consulting with your financial planner, attorney, and/or tax advisor for personalized advice. 

The Impact of Inflation on Retirement Planning

Jason Gross, AIF ®, CRPS / 28 Jun 2023 / 401(k) Plan Information, Personal Finance, Retirement Trends & News, Small Business 401k

Inflation is a topic that has been widely discussed in recent times, and its impact on retirement planning cannot be overlooked, especially for small business owners. Planning for retirement involves ensuring that there will be enough funds to cover expenses and maintain a comfortable lifestyle in the future. Understanding the effects of inflation and how to navigate them is crucial for effective retirement planning. In this article, we will explore the impacts of inflation on retirement and provide strategies to help small business owners and their employees prepare for it.

What is Inflation?

Inflation refers to the persistent increase in the general price level of goods and services over time. As prices rise, the purchasing power of money decreases, meaning that the same amount of currency can buy fewer goods or services. Inflation is influenced by various factors, including changes in supply and demand, government policies, and economic growth rates. It is an inherent characteristic of most economies and has a direct impact on people’s financial well-being.

The Impact of Inflation on Your 401(k)

Inflation poses significant challenges for retirees, as it erodes the purchasing power of their fixed incomes over time. Many retirees rely on fixed income sources such as pensions or annuities to sustain their lifestyle during retirement. However, as prices rise due to inflation, the value of these fixed incomes diminishes. This can lead to a gradual decline in the standard of living, making it essential to account for inflation when planning for retirement.

Planning for Inflation in Retirement

When setting up a small business 401(k) plan, it is important to consider the impact of future inflation rates. While it is difficult to predict inflation with absolute certainty, historical data and economic indicators can provide some guidance. Consulting with a plan advisor or a financial advisor who specializes in retirement planning can help develop a personalized strategy that takes into account factors such as inflation, longevity, and individual goals.

Strategies for Inflation-Proof Retirement

While it is impossible to completely avoid the impacts of inflation, there are strategies that can help mitigate its effects on retirement savings. Consider the following strategies when planning for inflation:

1. Contribute the Maximum Amount: Take advantage of the maximum allowable contribution limits to your retirement accounts. These limits increase annually to keep up with inflation. For example, in 2023, the maximum contribution to a 401(k) rose to $22,500, with an additional $7,500 in catch-up contributions for individuals age 50 and older.
2. Employer Match: If your small business offers an employer match for employee contributions to the 401(k) plan, encourage employees to take full advantage of it. An employer match is essentially free money that can significantly boost retirement savings. And don’t forget that as the employer, you can contribute to your own retirement this way – up to the IRS limit of $66,000 in total for 2023!
3. Budget for Rising Healthcare Costs: Healthcare costs may rise faster than the general inflation rate. It is important to account for these expenses when planning for retirement and ensure that sufficient funds are allocated to cover future healthcare needs.
4. Regularly Monitor and Review Your Plan: Keep a close eye on your small business 401(k) plan and make necessary adjustments as needed as your business needs and company change. Stay informed about economic trends, investment performance, and changes in regulations that may impact retirement savings.
5. Diversify Investments: Spreading investments across different asset classes, such as stocks, bonds, and real estate, can help provide a hedge against inflation. Each asset class may react differently to inflationary pressures, reducing the overall risk to the portfolio.
6. Adjust Asset Allocation: Evaluate your asset allocation based on risk tolerance and retirement timeline. If you are a small business owner offering a 401(k) plan, consider providing options that align with your employees’ retirement timelines or offer monitoring by investment experts who have fiduciary responsibilities.

By implementing these strategies and staying proactive in your retirement planning, you can better prepare yourself and your employees for the impact of inflation. It is important to work with financial professionals who can provide guidance tailored to your specific circumstances and help ensure that your retirement plan is equipped to withstand the challenges posed by inflation.

In conclusion, small business owners need to consider the impact of inflation on retirement planning. By understanding inflation and its effects, and implementing appropriate strategies, it is possible to mitigate the erosion of purchasing power and build a retirement nest egg that can withstand the test of time. Stay informed, seek professional advice, and regularly review your retirement plan to ensure that you and your employees are well-prepared for the future.

Ubiquity is not a registered investment advisor, and the information provided herein should not be considered legal or tax advice. We recommend consulting with your financial planner, attorney, and/or tax advisor for personalized advice. 

How to Maximize Your Small Business 401(k) and Avoid Common Mistakes

Siân Killingsworth / 27 Jun 2023 / 401(k) Plan Information, Personal Finance, Small Business 401k

When it comes to retirement savings, a 401(k) is one of the most valuable tools available for small business owners and employees alike. However, many individuals make common mistakes that can hinder their ability to maximize the potential of their 401(k).

Here’s how to navigate your small business 401(k) like a seasoned pro—no matter how long you’ve been investing.

Understanding the Basics of a 401(k):

Before delving into the mistakes, it’s essential to grasp the fundamentals of a 401(k). A 401(k) is an employer-sponsored retirement savings plan that allows employees to contribute a portion of their salary before taxes. These contributions and any employer matching are invested into stocks, bonds, and other financial instruments. It grows tax-deferred, earning interest until withdrawal during retirement.

If you or your small business employees want more information, check out all the reasons a small business 401(k) is one of the most important ways to save for the future.

Ubiquity Retirement + Savings has your back when it comes to small business 401(k) plans. With our help, you can avoid mistakes like these:

Mistake #1: Not Taking Full Advantage of Employer Matching

One common mistake is failing to take full advantage of employer-matching contributions. Employers often offer a matching program where they contribute a percentage of the employee’s salary to the 401(k).

The flip side of this is that as a small business owner, you could be entitled to tax deductions by offering a 401(k) match to your small business employees. Make sure you (and your employees) aren’t leaving free money on the table!

Mistake #2: Neglecting to Increase Contributions Over Time

Another mistake is not increasing contributions over time. It’s crucial to periodically reassess your financial situation and aim to contribute a higher percentage of your income as your earnings grow. Gradually increasing your contributions ensures that you are consistently saving more for retirement.

Mistake #3: Ignoring Investment Diversification

Diversification is key to managing risk in your 401(k). Neglecting to diversify your investments by allocating funds across different asset classes can expose your savings to unnecessary volatility. It’s essential to spread your investments among stocks, bonds, and other options based on your risk tolerance and time horizon.

Mistake #4: Withdrawing Funds Prematurely

One significant mistake is withdrawing funds from your 401(k) before reaching retirement age. Withdrawals before you’re 59 ½ incur not only taxes, but also penalties.

Mistake #5: Failing to Rebalance the Portfolio

Over time, the performance of your investments can deviate from your desired asset allocation. Market conditions, economic factors, and personal circumstances can change over time, impacting the performance of your employee’s investments and the overall efficacy of your plan. Failing to rebalance your portfolio regularly can result in an unintended concentration of risk. Periodically review (annually, at a minimum) and rebalance your investments to ensure they align with your long-term goals.

If you’re the sponsor of a small business 401(k) plan, it can be helpful to survey your employees to make sure the retirement plan options you offer actually provide them with the resources they need to save for retirement.

Mistake #6: Overlooking Roth 401(k) Options

Whether you’re a small business owner, plan sponsor or employee, taking advantage of a Roth 401(k) can be beneficial.

A Roth 401(k) allows contributions to be made with after-tax dollars. While this means you don’t get an immediate tax break, withdrawals during retirement are tax-free. Depending on your financial situation, a Roth 401(k) can be valuable to your retirement savings strategy.

Mistake #7: Not Reviewing and Adjusting Plan Provisions Regularly

It’s important to review and adjust your provisions within your small business’s 401(k) plan regularly. Whenever your business grows, shrinks, or otherwise changes, review your plan documents to be sure that your plan is delivering the retirement solution you need. If you are a sole proprietor just about to hire some new staff (congrats!), you’ll need a retirement plan that covers them too.

Or if you are hoping to avoid some of those pesky IRS compliance tests, you may opt to get a Safe Harbor provision added to your plan. There are lots of plan options, so talk with your plan provider to make sure you know what’s available to you.

Mistake #8: Choosing High-Fee Plans

For employees, fees associated with 401(k) investments can eat into your returns over time. And for small business owners, a 401(k) plan provider with high pricing or percentage-based fees can end up costing more than you budget for.

Many individuals make the mistake of selecting funds with high expense ratios, resulting in reduced long-term growth. When choosing a 401(k) plan for your small business, seek out a provider who offers flat fees¹, transparent pricing, and is well-reviewed. (Have you met Ubiquity?)

Mistake #9: Relying Solely on the 401(k) for Retirement Savings

While a 401(k) is an excellent retirement savings vehicle, relying solely on it may not be sufficient. It’s essential to diversify your retirement savings by exploring other options such as individual retirement accounts (IRAs) or taxable investment accounts. This diversification can provide additional flexibility and potentially higher returns.

Mistake #10: Not Seeking Professional Guidance

Navigating the complexities of retirement planning and maximizing your 401(k) can be challenging. Many individuals do not seek professional guidance from financial advisors or retirement specialists. A knowledgeable expert can provide personalized advice, help you avoid costly mistakes, and create a comprehensive retirement strategy tailored to your needs.

1 Decimal, Inc. charges flat fees for recordkeeping and administrative services. Third-party service providers may assess asset-based fees to customers. We advise Plan Sponsors to review all service agreements with providers, such as investment advisors, custodians, and broker-dealers, to evaluate the total cost of the plan. 

Ubiquity is not a registered investment advisor, and the information provided herein should not be considered legal or tax advice. We recommend consulting with your financial planner, attorney, and/or tax advisor for personalized advice.