Safe Harbor 401(k) Tax Credits 

Siân Killingsworth / 5 Aug 2022 / 401(k) Plan Information, Retirement News, Safe Harbor

The most highly valued benefit of Safe Harbor 401k plans is that small business owners automatically satisfy non discrimination testing allowing them to maximize their deferrals without worry of a failed test. But did you know that choosing to set up a Safe Harbor retirement savings plan also qualifies small businesses for special tax credits to offset administrative costs? It’s true – the Safe Harbor provision can help you bring down your corporate taxes, and the savings can be applied to running the plan itself.

Who Qualifies for Safe Harbor Tax Credits?

As of January 2020, the SECURE Act permits qualified small businesses to claim a tax credit (of up to $5,000 per year for the first three years) for adopting a new 401(k) retirement plan, regardless of the plan’s Safe Harbor status.

To qualify, a small business must have 100 or fewer employees who received at least $5,000 in compensation in the preceding year, had at least one non highly compensated employee,  and you must not have had a 401(k) or qualifying retirement plan within the last three years.

What Tax Credits Apply to Safe Harbor 401(k) Plans?

There are two types of tax credits that apply to small business 401(k) plans:

The New Plan Tax Credit

The SECURE Act tax credit lets qualified small businesses claim up to $5,000 in tax deductions per year for up to three years. They can save up to a total of $15,000 when they establish a new 401(k) plan.

The Auto-Enrollment Tax Credit

Small business employers can also claim $500 a year (for three years) by adding an auto-enrollment feature to a new or existing plan. When you choose auto-enrollment, all eligible employees will be entered into the plan at a base rate of 3% pay, which automatically increases by 1% each year until reaching a maximum of 15%. Employees can opt out or modify their savings rate at any time without affecting the small business tax credit.

In summary: you can claim a maximum of $5,500/year — or $16,500 in total — over a three-year period.

Additional Benefits of Safe Harbor 401(k) Plans

The tax credit opportunity is just one of the many reasons small businesses consider a Safe Harbor 401(k) plan.

Safe Harbor small business 401(k)s  require employer contributions. You can choose from several contribution formulas: You can contribute in one of two ways:

• A non-elective contribution worth 3% pay to every eligible employee in the plan.
• A basic or enhanced matching contribution which is immediately 100% vested.
• A sample basic match might be 100% on the first 3% and 50% on the next 2%.
• A sample enhanced match might be a 100% match on the first 4%.

At tax time, you can also write off any amount contributed as a tax-deductible business expense, which may lower your tax bill.

Also, because you will automatically pass the IRS non-discrimination tests, you won’t have the stress or potential penalties from noncompliance as a financial concern.

If you have questions about 401(k) retirement plans for your small business, including how to take advantage of Safe Harbor tax credits, contact Ubiquity — one of America’s top providers of low-cost, flat-fee small business 401(k)s.

A Small Business Owner’s Guide to CalSavers

Siân Killingsworth / 7 Jun 2022 / Retirement News

A Small Business Owner’s Guide to CalSavers

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

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

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

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

Why is the state of California offering a retirement plan?

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

Why is this such problem?

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

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

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

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

How does CalSavers work?

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

Automatic Enrollment

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

How does this work in practice?

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

Payroll Deduction

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

Roth IRA

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

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

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

Click here to read more about 2021 contribution limits

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

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

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

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

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

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

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

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

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

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

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

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

• Missing out on significant tax benefits

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

• CalSavers charges your employees asset-based fees.

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

What are the alternatives to the CalSavers program?

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

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

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

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

Choose the better path to savings

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

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

What Are the Safe Harbor Plan Rules for 2022?

Siân Killingsworth / 9 Mar 2022 / 401(k) Plan Information, Retirement News, Safe Harbor

See what rule changes are in place for small business Safe Harbor 401(k) plans for 2022.

It’s helpful to know which IRS rules and limits apply from year to year, whether you currently offer a Safe Harbor 401(k) or you are exploring options to open a small business 401(k) plan in 2022. If you have an existing 401(k) that is not a Safe Harbor, making the switch is as easy as adding a plan amendment. As one of the leading providers of small business retirement plans, Ubiquity can help you do just that.

Since 1999, small businesses have counted on Ubiquity Retirement + Savings to administer affordable retirement solutions, including Safe Harbor 401(k)s. Whether you’re a solopreneur, startup owner, or employ fewer than 100 people, we keep up on the latest plan rules to keep you in compliance.

General Safe Harbor 401(k) Rules

If you’ve failed ADP and ACP nondiscrimination tests or if IRS compliance is of concern to you, then it’s worth looking into the Safe Harbor 401(k) plan. These plans allow you to bypass testing when you accept a few ground rules that ensure fairness for Non-Highly Compensated Employees (NHCEs) and Highly Compensated Employees (HCEs).

• Employers must provide a matching or nonelective contribution to all 401(k)-eligible employees
• The contribution must be immediately vested
• On average, HCEs cannot contribute more than two percentage points greater than NHCEs

2022 Contribution Limits

The upper limit for 401(k) contribution limits, including for Safe Harbor plans, went up in 2022:

• Both traditional and Safe Harbor 401(k) plan limits increase by $1,000 to $20,500 in 2022
• Those age 50 or older can add another $6,500 in catch-up contributions
• The employer/employee maximum is $61,000 – up $3,000 from 2021
• The maximum employee limit for calculating contributions increased by $15,000 to $305,000 in 2022
• The threshold for key employee top-heavy testing increased $15,000 to $200,000
• The threshold for highly compensated employee nondiscrimination testing increased $15,000 to $200,000

SECURE Act Changes Applicable to 2022

The SECURE Act (first in effect for the 2020 plan year) created the following changes that remain in place for 2022:

• A 15% maximum automatic contribution rate for QACA Safe Harbor 401(k)s

Qualified Automatic Contribution Arrangements Safe Harbor plans previously auto-enrolled participants at a rate of 3-10%, increasing contributions in 1% annual increments to a 10% maximum. Companies may opt to increase to a 15% maximum if they so choose. Changes can be made to the plan as late as the end of 2022.

• No need for nonelective plan notice requirements

Prior to the SECURE Act, employers were required to notify all Safe Harbor plan participants of their eligibility, prior to the beginning of the year. Employers must still notify employees of a matching contribution plan in order to satisfy ACP test requirements. However, notification is not mandatory to satisfy ADP requirements when nonelective contributions are made on the employees’ behalf. Other notices – like eligible automatic contribution arrangements, auto-enrollment opt-outs, and mid-year contribution elimination – are still required.

• Retroactive Safe Harbor with nonelective contributions allowed

Employers may retroactively apply a 3% nonelective contribution to the year up until December 1, 2022.

Employers may retroactively apply a 4% nonelective contribution to the year up until December 31, 2022.

Contact Ubiquity for Safe Harbor 401(k) Administration in 2022

It’s not too late to start a Safe Harbor 401(k) plan for 2022. Contact us to customize a retirement savings solution for your small business.

2022 Retirement Plan Contribution Limits

Siân Killingsworth / 12 Nov 2021 / 401(k) Plan Information, IRA Resources, Retirement News

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

Download the Ubiquity Retirement + Savings 2022 Contribution Guide

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

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

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

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

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

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

2022 Highly Compensated and Key Employee definitions and limits

2022 Roth and Traditional IRA contribution limits

2022 Traditional IRA modified adjusted gross income limit for partial deductibility

2022 Roth IRA modified adjusted gross income phase-out ranges

2022 Simple IRA contribution limits

2022 Health Savings Accounts (HSA) contribution limits

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

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

SECURE Act 2021 Eligibility Updates

Siân Killingsworth / 29 Mar 2021 / Business, Retirement News, Retirement Trends & News

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 was the first major update to retirement plans in more than a decade.

Certain provisions already debuted, but one of the most significant changes — expansion of eligibility to participate in 401(k) plans – went into effect on January 1, 2021. Wondering what these changes are and what they mean for your small business this year? As a leading small business 401(k) administrator, Ubiquity is here to clarify matters.

Who Is Eligible to Participate in 401(k) Plans, Under the SECURE Act?

The 401(k) retirement savings vehicle is no longer just for long-term, full-time employees working more than 1,000 hours. Under Section 112 of the SECURE Act, eligibility expands to workers who:

• Are at least 21 years old by the last day of the 401(k) plan year
  and
• Work part-time for at least 500 hours per year, over the past three consecutive years.

When calculating whether or not an employee has worked “at least 500 hours,” plan sponsors are not required to count before January 1, 2021. So, while you have to start tallying up the hours your part-time workers are putting in starting this year, you may not have to formally enroll these workers into your 401(k) until the 2024 plan year.

The SECURE Act Eligibility Update’s Impact on Nondiscrimination and Top-Heavy Testing

The SECURE Act change will add a layer of administrative complexity, as plan sponsors develop new systems for tracking and reviewing hours for part-time employees over the one to three-year tracking periods.

Sponsors will need to consider whether part-time employees will also be eligible for employer contributions and whether to set a vesting schedule. If a long-term, part-time employee becomes eligible for employer contributions, each of the years they were employed and worked 500 hours (even before January 1, 2021) must count for vesting.

For employers who are subject to nondiscrimination and top-heavy testing, adding long-term, part-time employees can skew the results. The SECURE Act allows a testing exclusion for employees working 500 hours a year, but employees working 1,000 or more hours in one year must be included. If, when you start your plan, it contains more than 100 participants, you will require an independent qualified auditors report to accompany your annual Form 5500. If you’re a growing business that has been considered a small plan in the previous year, you will not be audited until you hit 120 participants.

If you are worried about your ability to pass these annual tests, you may want to consider contacting Ubiquity about adding a Safe Harbor provision to your plan for hassle-free administration.

Eligibility Questions to Consider

Plan sponsors may want to consider this short list of questions to ensure they are prepared for the change:

• Is the hours of service tracking system updated as of January 1 to stay compliant?
• Have you updated your plan administration documents to note the new eligibility criteria?
• Do you wish to expand eligibility for matching or non-elective contributions to these employees?
• Do you need to update new-hire and recruiting materials to ensure plan participation?

What’s Next?

The House Ways and Means Committee introduced SECURE Act 2.0, otherwise known as the Securing a Strong Retirement Act bill, on October 27, 2020. If passed, this bipartisan bill would, among other things, reduce the 12-month measurement period for long-term, part-time employees from three years to two years. Simply put, don’t plan on making the changes in 2024; prepare your business to increase plan enrollment today.

If you think now is the right time to start your 401(k) retirement savings plan, or have questions about switching providers, call Ubiquity, a leader in setting up and administering low-cost 401(k) plans for small businesses and solopreneurs.

2021 Retirement Plan Contribution Limits

Siân Killingsworth / 26 Oct 2020 / 401(k) Plan Information, IRA Resources, Retirement News

Curious how much you can invest toward your retirement in 2021?

Download the Ubiquity Retirement + Savings 2021 Contribution Guide

The IRS has announced the 2021 contribution limits for retirement and health savings accounts. This includes contribution limits for 401(k) and 403(b) plans, income limits for IRA contribution deductibility, and the salary threshold to classify “key” and “highly compensated employees”

While contribution limits won’t increase from 2020 to 2021, there is still some good news for retirement savers. The maximum income levels allowed to make deductible contributions to traditional IRAs and to contribute to Roth IRAs, have both increased for 2021.

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

2021 401(k) and 403(b) individual contribution limits (IRS 402(g) Limit)

The IRS has also set limits for the total amount that may be contributed to your retirement savings 401(k) account from all sources combined (IRS section 415 limit). This includes any employer matching or profit-sharing contributions, and any employee after-tax contributions. For 2021, this limit has increased from $57,000 to a new maximum of $58,000.

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

2021 Highly Compensated and Key Employee definitions and limits

2021 Roth and Traditional IRA contribution limits

2021 Traditional IRA modified adjusted gross income limit for partial deductibility

2021 Roth IRA modified adjusted gross income phase-out ranges

2021 Simple IRA contribution limits

2021 Health Savings Accounts (HSA) contribution limits

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

If you need more detailed guidance, see IRS Notice 2020-79.

Introducing: Simply Retirement by Principal® 

Siân Killingsworth / 25 Aug 2020 / Retirement News

Today, we’re excited to announce the launch of Simply Retirement by Principal® with plan services by Ubiquity Retirement + Savings®–a 100% digital retirement solution for financial professionals and their small business clients looking to start retirement plans.

Simply Retirement by Principal® is an online 401(k) plan designed to be the most straightforward, budget-friendly approach to setting up a retirement plan—with education and resources to help businesses with 100 employees or less feel more confident along the way.

Since our inception in 1999, Ubiquity’s mission has been to empower small businesses and their employees to create a more secure financial future and peace of mind, by leveraging technology with affordable and effective retirement solutions, and world-class customer support. Principal has a time-honored legacy of helping people and companies around the world build, protect, and advance their financial wellbeing.

We’re proud to be working with Principal, pairing their 75+ years of experience with the simplicity and cost-effectiveness of Ubiquity’s online platform. By working together, we can bring greater retirement plan access to the 5 million U.S. small businesses not currently offering their employees this essential benefit.

Click here to read today’s press release introducing Simply Retirement by Principal® or visit simplyretirement.com/financial-professionals to learn more.

It’s time to “retire” traditional approaches to retirement…and address the elephant in the room

Chad Parks / 17 Jul 2020 / Retirement News

Our world was turned upside down over the last few months as the coronavirus (COVID-19) spread across the globe. Throughout this pandemic, U.S. and international markets became increasingly volatile, businesses across the country were forced to shutter their doors for months at a time and the small business community was hit particularly hard.

That said, there is a light at the end of the tunnel. The U.S. economy is slowly starting to reopen, which should create opportunities for individuals and businesses to recover.

While we are optimistic about the future, we shouldn’t forget the past. This is not the first major economic challenge or market downturn our country has faced, and it won’t be the last. None of us want to experience the fear, uncertainty or pain of not being financially prepared to get through the next crisis, especially as we enter our retirement years.

So, how do we face the future with confidence, no matter what it might hold? To answer that, we first need to explore the forces at work in the retirement industry today.

Retirement today

When we look across the retirement landscape, there are three key themes dominating conversations today.

• The disappearing three-legged stool. Historically, individuals have had three main vehicles available for their retirement needs: Pensions, Social Security and personal savings. However, this model is no longer sustainable — company pensions are nearly extinct, public pensions are woefully underfunded and Social Security is projected to have a 20% or greater reduction in benefits by 2034 if no changes are made today. That means the responsibility for establishing a secure retirement now falls squarely on the individual, through the use of a 401(k) and other retirement savings plans. With life expectancy increasing globally, stashing away enough money to live comfortably in retirement for 10 to 20-plus years has become a significantly bigger burden.
• The rollout of state-mandated retirement plans. In the last decade, we have seen the rise of state-mandated retirement programs. These are designed to encourage businesses to enroll more employees in long-term retirement plans and help combat the looming retirement crisis described above. Essentially, employers in participating states are required to either enroll in the state-sponsored program (in most cases, a payroll-deduct Roth IRA) or work with a private provider. California, Illinois, Connecticut, Oregon and Maryland have been leading the charge in enacting these measures, with several other states considering legislation. If you operate a business in one of these states, make sure you carefully consider the benefits of working with a private provider before opting for the state option, and ensure you are taking the necessary steps to comply with enrollment deadlines. If you do not live in a state with a mandated retirement program, there are still many benefits to offering a retirement plan for you and your employees that should be carefully considered.
• The passage of the SECURE Act. The Setting Every Community Up for Retirement Enhancement (SECURE) Act, signed into law in December 2019, is one of the biggest pieces of retirement legislation enacted in over a decade. It includes several significant incentives for small businesses, such as tax credits up to $5,000 for starting a retirement plan and offering automatic enrollment. It also introduces new retirement benefits for individual savers, including raising the required minimum distribution age for retirement accounts to 72 (from 70½) and allowing long-term, part-time workers to participate in 401(k) plans. This act is a huge step in the right direction to encourage businesses and individuals alike to take control of their financial futures.

Ensuring financial security after the events we recently faced as a country is going to take the perfect storm of governmental support, institutional changes and societal shifts. That said, it’s possible if we work together and use this experience as a wake-up call to focus on the future.

Retirement of the future

The recent pandemic and resulting market downturn shined a spotlight on the reality of retirement savings in America, magnifying the importance of preparing for short-term needs without sacrificing long-term goals.

The new approach to saving for retirement may be moving away from a singular approach and toward a dual-savings strategy.

This would generally start by making savings the number-one line item in a budget. Many people don’t have even a simple budget in place, and those who do often have it backward. They pay their bills, book travel plans or nights out with friends and then, if they have anything left over, contribute to their retirement savings. It may be time to start seriously thinking about reversing this strategy and paying yourself first.

A dual-savings strategy may be completed by bifurcating savings into the following vehicles:

• Short-term savings account or “emergency fund.” This acts as the necessary “padding” to accommodate any unexpected costs or life events (e.g., losing a job, medical expenses, car or home repairs, etc.). The goal for this account would be around six months’ worth of typical monthly expenses. Don’t worry if you’re not close to that target right now. Every little bit counts and will make a huge difference when it matters most. Generally, an emergency fund, would contain 80% of budgeted savings each month until that goal is reached.
• Long-term retirement savings plan. This would be a 401(k) or similar qualified retirement account. Generally, the other 20% of allotted monthly savings would go here while you are still contributing to an emergency fund — and then 100% of savings would eventually go to retirement once the emergency fund goal is met. A long-term retirement plan is similar to a one-way street: Money is put in and not taken out until its needed in retirement. That’s the beauty of having a short-term savings account in place to fund any immediate expenses.

Saving for retirement while simultaneously managing other financial responsibilities is a challenge we all must face. This dual-savings strategy allows both goals to be achieved: preparing for the unexpected while still investing in the future.

This is the beginning of a tectonic shift in retirement savings. Many people envision retirement as endless vacations or carefree spending, but that’s not the reality of our world today. Retirement is essentially permanent unemployment and it is solely up to the individual saver — not the government or employers — to ensure financial security when leaving the workforce. But the good news is, no one has to go it alone.

Ubiquity is here to help

At Ubiquity Retirement + Savings, we are committed to staying true to our name and supporting the retirement savings needs of the small business community.

There is no doubt we will face challenges along the road. But we have weathered many storms in the past — from 9/11, to the financial crisis of 2008-2009, to the recent coronavirus pandemic — and have always bounced back stronger because of our ability to adapt.

Rest assured, we are not sitting idly by as the world changes around us. We are taking our 20-plus years of experience, our proprietary technology and our entrepreneurial spirit and adjusting our retirement solutions and service offerings to better serve you and your employees.

While we cannot predict what the future has in store, we will face it together head-on, armed with all the tools you’ll need to build the retirement that’s right for you.

The CARES Act, Your Retirement Plan, and You

Siân Killingsworth / 26 May 2020 / Retirement News

As of 5/26/2020

Previously we discussed how the recent stimulus package, “Coronavirus Aid, Relief, and Economic Security Act” (the CARES Act) helped small businesses owners struggling during the ongoing COVID-19 crisis.

Today, we’ll take answer some of our most frequently asked questions when it comes to CARES and your retirement plan.

Who is qualified for Retirement Plan relief?

The most significant retirement plan changes in the CARES Act are intended to help retirement plan participants effected in some way by COVID-19. The CARES Act introduces coronavirus-related distributions and expands participant loans for qualified individuals.

A qualified individual is someone who:

• has been diagnosed with COVID-19;
• has a spouse or dependent(s) diagnosed with COVID-19; or
• experiences adverse financial consequences due to the virus resulting from:

• being quarantined, furloughed, or laid off

• having their work hours reduced
• being unable to work due to lack of child care; or
• closing or reducing hours of a business the individual owns or operates.

Coronavirus-Related Distributions

What are the rules around withdrawing money from my retirement plan?

The CARES Act permits distributions from January 1, 2020 to December 30, 2020 to qualified individuals> (see above) of up to$100,000. In addition, the10% early withdrawal penalty for such distributions is waived and the20% federal income tax withholding can be ignored. The distribution can berepaid to the plan within 3 years to gain tax-free rollover treatment. Taxable amounts required to be included in gross income can be spread over a 3-year period.

Is there an age requirement to take the CARES Act Distribution?

No. As long if you are considered a qualified individual, you may take advantage of CARES Act relief, regardless of age.

How do I pay back a CARES Act distribution?

Repayments of CARES Act distributions will be treated as related rollover contributions to the plan. They will not apply against any annual contribution limits. The process to “repay” the distribution is the same as the process to rollover funds into the plan.

If you lose your job during this time, you can still pay back your CARES Act distribution back to a plan or IRA, into which they you are eligible to make rollover contributions.

COVID-19 401(k) Loans

Can I still borrow from my 401(k) or other workplace retirement plan?

Yes–and you can take longer to pay them off. If you’re a qualifying individual, repayments are extended by one year for loan payments due March 27, 2020 through December 31, 2020. This means, that while you can stillchoose> to pay your loan on time, you> will not be penalized if you’re up to one year late for each payment due during this period.Keep in mind that even though you don’t have to make payments during this time, interest will continue to accrue.

Depending on your plan and 401(k) provider, The CARES Act also gives an opportunity for savers to borrow more money than usual. An optional provision allows qualified savers to March 27, 2020- September 22 2020, to borrow:

(a) 100% of their vested account balance

(b) $100,000.

Whichever is less. This temporarily increases the usual 401(k) loan limit, which is typically half your balance. Learn more about 401(k) loan rules here.

Required Minimum Distributions (RMDs)

In regular circumstances, starting at age 72, you must withdraw a minimum amount from your account each year and pay income taxes on it–this is called a Required Minimum Distribution.

As a part of the CARES Act, for the calendar year 2020, no one will have to take an RMD from any individual retirement accounts (IRAs) or workplace retirement savings plans, like your 401(k).

If you don’t have need the money to pay immediate bills, letting the investments sit may help regain any losses due to recent market volatility. While we don’t yet know the long-term effect of the pandemic on the economy, if we look back over history, major events like this tend to have greater short-term impacts rather than long-term ones.

Looking for more information on CARES Act and COVID-19?

• CARES ACT: What Small Business Owners Need to Know>
• How to get Coronavirus Aid for my Small Business>
• Should I Stop Contributing to My 401(k) When the Market is Down?