Category: Small Business 401k

The Value of Retirement Planning for Small Business Employees

Siân Killingsworth / 6 Mar 2023 / Personal Finance, Small Business 401k

As a small business owner, it’s imperative that you ensure your employees are prepared for retirement. After all, you care about them and their financial future. These helpful strategies will help ensure that your employees are ready for what comes next.

Why retirement planning is (extra) important for small business employees

Retirement planning is essential for everyone, but especially for employees of small businesses that may not have the deep pockets that a major corporation does—and the sooner they start saving, the better. Many small business employees may not have access to the same retirement benefits as those at larger companies, such as pension plans or stock options, which can make it harder to save.

Additionally, small business employees may be more vulnerable to financial shocks that may arise such as unexpected medical expenses or a job loss. Having a healthy retirement plan can help provide a safety net for these (and many other) unexpected expenses.

Most people significantly underestimate the amount of money they’ll need in retirement and may not save enough to be able to maintain their current lifestyle after retirement. By educating your employees on the importance of retirement planning, you can help them avoid this common pitfall. Future them will thank you.

3 biggest benefits of saving in a 401(k)

These are the top three most compelling reasons for your employees to participate in your small business 401(k) that they need to know now:

High contribution limits. One of the most important benefits of a 401(k) is how much money each individual is permitted to contribute each year. These limits are set by the IRS, and typically increase annually to keep up with inflation. The maximum contribution in 2023 is $22,500 for people under age 50. For those aged 50 and older, the total is $30,000.

Tax savings. Be aware 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.

Compounding interest. Another big benefit offered by 401(k) plans is compounding interest. This is a saver’s best friend. When you invest in a 401(k), the money you add generates interest. Then the interest itself generates interest (compounding) and can grow rapidly year over year.

How to educate your small business employees on retirement planning

There are a number of ways that you can help your employees learn more and feel confident with their retirement planning:

1. Offer employer-sponsored retirement plans

One of the most effective ways to encourage retirement planning is to offer employer-sponsored retirement plans, such as 401(k)s. These plans allow your employees to contribute pre-tax dollars to a retirement account, which can help reduce their taxable income and increase their retirement savings. Bonus points for offering matching contributions.

2. Provide ongoing education and support

Retirement planning can be complex, and many people may not know where to start. Consider providing ongoing education and support to your employees, such as financial advisors or retirement planning workshops. This can help everyone feel more confident in their retirement planning.

There are lots of online tools you can share with employees – and use yourself– that help them with the logistics of retirement planning. One great tool is a paycheck calculator, which helps people determine how much they can afford to contribute from each paycheck.

There are also 401(k) calculators that can help participants figure out how much they can expect to save over their own expected time horizon. The information these calculators take into account includes age, income, current savings amount, expected age of retirement, probable rate of return, and more.

3. Create a culture of contribution

You can lead by example, provide education, and make it easy for your employees to set up their 401(k)s. By being open and clear about offerings and benefits, more employees are likely to use the investment options you present. You can even take it to the next level by making retirement planning and benefits information part of your small business’s onboarding process.

The Importance of Offering Employee Matching Contributions in Your Small Business 401(k) Plan

Siân Killingsworth / 17 Feb 2023 / Small Business 401k

As a small business owner, offering a 401(k) plan can be a valuable tool for attracting and retaining top talent. But how can you make it even more enticing for your employees? By offering employee matching contributions, you incentivize your employees to participate in the plan, increase their retirement savings, and boost their loyalty to your business.

Benefits for you

Offering an employer-sponsored 401(k) match can also provide tax benefits for your small business. Employer contributions to a 401(k) plan are tax-deductible, which means they’ll reduce your taxable income and lower your business’s tax bill.

Boosts employee morale and loyalty

Offering a matching contribution can also boost employee morale and loyalty. When employees feel that their employer is invested in their financial future, they’re more likely to feel valued and loyal to the company. This can lead to increased productivity, higher job satisfaction, and a lower turnover rate.

Encourages employee participation

According to a survey¹ by Charles Schwab, 94% of employees would participate in a 401(k) plan if their employer offered a matching contribution. (Only 68% of employees said they would participate in a plan without a match.) Offering a match is an easy way to encourage your employees to start saving for retirement – and show you care by investing in their futures.

Increases employee retirement savings

With their own 401(k) contributions and a match from you, employees can save more money than they would be able to on their own. Over time, the additional savings will compound and grow, leading to a larger nest egg for retirement.

Helps attract and retain top talent

Offering employee matching contributions can be a competitive advantage when it comes to attracting and retaining top talent. According to a survey by the Transamerica Center for Retirement Studies, 66% of workers said a retirement plan is a major factor in their decision to accept a job, and 83% said it’s an important benefit that keeps them at their job.

By offering a 401(k) plan with matching contributions, you’re demonstrating to potential and current employees that you value their long-term financial security and are willing to invest in their future.

Considerations for small business owners

While matching contributions can greatly benefit both your small business and your employees, there is also the question of how much to contribute.

Consider the cost of matching contributions

Depending on the matching contribution structure and vesting schedule, offering a match can be costly for your small business. It’s important to consider the financial impact and make sure that offering a match aligns with your overall business goals.

Plan administration and compliance

Offering a 401(k) plan with matching contributions can also require additional administration and compliance work. You may need to work with your provider to ensure your plan is set up correctly and stays in compliance with IRS regulations.

Choose the right 401(k) plan provider

When selecting a 401(k) plan provider, it’s important to consider their fees, investment options, and customer service. A provider with low fees and a wide range of investment options can help your employees save more money for retirement (and provide better value to your business).

Communicate with your employees

Like the benefits of your 401(k) plan with matching contributions? Shout them from the rooftops – or find another way to tell your employees. Make sure they understand how the plan works, how much they can contribute, and how the match can help them save more for retirement. Promoting the plan and providing education and resources can help your employees make informed decisions about their retirement savings.

1 https://www.aboutschwab.com/schwab-401k-participant-survey-2021

Ubiquity is not a registered investment advisor and no portion of the material herein should be construed as legal or tax advice. Please consult with your financial planner, attorney and/or tax advisor for advice.

How to Save More in 2023 With a 401(k)

Siân Killingsworth / 18 Jan 2023 / 401(k) Plan Information, Business, Small Business 401k

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.

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.

3 Reasons Why Automatic Enrollment is Awesome

Siân Killingsworth / 23 Nov 2022 / 401(k) Plan Information, Retirement Trends & News, Small Business 401k

55 million American workers—more than 40% of full-time, private-sector employees—don’t have access to a workplace retirement savings plan. As very few employers offer pensions and Social Security is drying up, with funds expected to be depleted as soon as 2035, the responsibility for saving falls more on the individual than ever before.

Automatic enrollment is a retirement plan feature that enables employers to admit new participants into the plan as soon as they are eligible to participate. Instead of the traditional method of waiting for the participant to meet eligibility requirements and then enrolling manually (or not – many eligible employees procrastinate or forget), this lets employers add new eligible participants quickly and easily.

But why is this so great?

The #1 most significant element to impact a plan balance is the contribution rate.  

Not investments, not management. Simply contributing to a retirement plan makes all the difference, and we designed our 401(k) plan options with this in mind. Here are three compelling reasons why small business owners should embrace the ease that automatic enrollment options bring to your 401(k) plan:

1. Auto-enrollment makes saving easy for employees

Although a 401(k) plan is the second-most popular employee benefit after health insurance, only a fraction of employees actually participate because they believe that enrollment is complicated.

But a plan with the auto-enroll feature removes that complication and gets employees the benefit they want as soon as they’re eligible to enter the plan without the hassle of completing forms. They can start saving for retirement and accumulating earnings on those savings sooner, which means more money for their retirement!

Employees can always opt out but using auto-enrollment has shown to double or even triple the rate of participation, particularly among younger employees and those earning less than $30,000.

2. Auto-enrollment helps employers attract and retain talent

Staying competitive in the job market is vital in today’s economy. It is becoming ever more important to attract and retain employees—and offering free snacks or a ping-pong table is not going to cut it. Instead, salary, healthcare insurance, and a retirement plan are the top three most critical elements job seekers consider.

Giving your employees a way to save for their retirement is a cost-effective and easy way to attract and retain talent and maintain an edge over the competition.

3. Employers whose plans feature auto-enrollment save on taxes

All employers who open a new 401(k) plan may be eligible for substantial tax credits. You can qualify for up to $15,000 in credits just for opening a new 401(k) plan.

And when you add automatic enrollment, you save even more. This one feature can qualify you for a tax credit worth $500 per year for the first three years of the plan.

These tax credits for your business—a total of up to $16,500—can help small business owners like you save for your own retirements.

A few things to remember:

Ubiquity 401(k) plans offer the option of auto-enrollment with or without auto-escalation (i.e., to have their savings amount increase automatically). Participants can opt out of auto-enrollment at any time to:

• Change their contribution amount
• Make Roth contributions (if available in the plan)
• Opt out of participating in the plan altogether

All contributions made through auto-enrollment remain in the participant’s account even if they opt out within the first 90 days. Once a participant opts out of auto-enrollment, they cannot opt back into having their contribution amount(s) increase automatically if auto-escalation is included in the plan; however, they can change their savings amount at any time.

To speak with a retirement expert on which retirement plan is right for your small business, reach out to Ubiquity today.

1 Eligible employers may be able to claim a tax credit of up to $5,000, for three years, for ordinary and necessary costs of starting a 401(k) plan. IRS’ qualifying factors are: you had 100 or fewer employees who received at least $5,000 in compensation from you in the preceding year, you had at least one participant who was a non-highly compensated employee (NHCE) and in the three tax years before the first year you’re eligible for the credit, your employees were substantially the same employees who received contributions or accrued benefits in another plan sponsored by you, a member of a controlled group that includes you, or a predecessor of either. Those plans with automatic enrollment can claim a tax credit of $500 per year for a 3-year taxable period.

Ubiquity is not a registered investment advisor, and no portion of the material herein should be construed as legal or tax advice. Please consult with your financial planner, attorney and/or tax advisor for advice.

Annual Retirement Contribution Limits

Jefferson Baniqued / 17 Nov 2022 / 401(k) Plan Information, Small Business 401k

Wonder how much you can save for your retirement this year?

Download the Ubiquity Retirement + Savings 2024 Contribution Guide

The IRS has announced the annual 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.

Good news! Contribution limits for individual retirement accounts (IRAs) will increase from 2023 to 2024, and even more so for retirement savers who participate in a workplace employment plan like a 401(k).

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

2024 401(k) and 403(b) Contribution Limits  

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 2024, this limit has increased from $66,000 to a new maximum of $69,000.

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

2024 Roth and Traditional IRA Contribution Limits

2024 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.

For 2023 limits please click here. 

If you need more detailed guidance, see IRS Notice 2023-75. 

A Business Owner’s Guide to the IL Secure Choice Program 

Siân Killingsworth / 26 Sep 2022 / Small Business 401k

55 million American workers—more than 40% of full-time, private-sector employees—don’t have access to a workplace retirement savings plan. As very few employers offer pensions and Social Security is drying up, with funds expected to be depleted as soon as 2035, the responsibility 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, California, and Illinois leading the charge.

In 2018, Illinois began rolling out Illinois Secure Choice, the state-sponsored IRA program for the 1.2 million private-sector workers in the state who do not have access to an employer-sponsored retirement savings plan. As of March 2022, more than 6,400 employers and 100,000 employees were already registered and saving for their future.

What is the IL Secure Choice retirement savings program?

To help Illinois residents build their retirement savings, the state of Illinois is rolling out an initiative requiring all employers to offer some type of retirement plan for their workers. The deadlines for setting up a plan are rolling based on the size of the business.

Is the IL Secure Choice program mandatory?

No. While setting up a qualified retirement savings plan is mandatory for employers who have 25 or more employees, it doesn’t have to be the Illinois Secure Choice plan. Beginning November 1, any employers with between 16-24 employees will also have to take part in a retirement savings plan, but it need not be the state-run plan.

Can I opt out of Illinois Secure Choice?

Yes. 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 plan:

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

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.

Is the IL Secure Choice retirement savings program a Roth IRA?

The plan they are offering is a basic Roth IRA. But with low contribution limits, limited investments, and few tax advantages, is it the best solution for empowering your team’s financial future?

What’s a Roth IRA?

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

Roth IRAs have two important rules and restrictions:

• You can’t contribute to a Roth IRA if you make too much money. The income limit for singles in 2022 is $144,000.
• The amount you can contribute each year changes, based on inflation. In 2022, 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 2022 contribution limits

How does the IL Secure Choice retirement savings program work?

Illinois Secure Choice —the state-sponsored plan— has a deadline of November 1, 2022, for the next group of small business owners. Employers in Illinois with 16-24 employees will be required to enroll in the state-run Roth IRA or offer a private option. Illinois Secure Choice is an automatic-enrollment, payroll deduction Roth IRA. Let’s break down what that means to you:

•  Automatic Enrollment: If your business opts into the state-provided IRA, after a 30-day grace period, eligible employees will automatically start saving for the future through a 5% contribution from their payroll.
• Payroll Deduction: This means that all participating employees will contribute a part of their salary into their IRA automatically from each paycheck.
• How it works in practice: Added employees will receive a notification from Illinois Secure Choice 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.

What will the state-run plan cost my business?

There are no employer fees in the Illinois Secure Choice program, but you are not allowed to make tax-deductible matching contributions as you could in a 401(k) plan.

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

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

There are several advantages for companies to choose the Illinois IRA product including:

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

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

The access to workplace retirement savings plans offered by Illinois Secure Choice 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.
• Employees will be charged asset-based fees
  • Currently, Illinois Secure Choice charges an asset-based fee, so your employees are increasingly penalized based on how much they save. This plan has no option to select a flat-fee program, which would provide greater transparency and ultimately lower costs as savings accumulate.

Is the IL Secure Choice IRA best for my business?

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 Illinois, a 401(k) might be better alternative for your small business and your employees’ futures.

Choose the better path to savings with a Ubiquity 401(k)

If you’re looking for the maximum savings potential and tax benefit, Ubiquity provides customizable 401(k) plans that act as an Illinois Secure Choice 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 for 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.

4 Things to Know About the Upcoming CalSavers Deadline

Siân Killingsworth / 21 Jun 2022 / Small Business 401k

In an effort to ensure that small California businesses are able to help their employees save for retirement, in 2019 the state launched its CalSavers retirement savings program with staggered deadlines for opt-ins by businesses of different sizes. The first deadline, which applied to small businesses with more than 50 employees, expired on June 30, 2021. The next legislated deadline of June 30, 2022, applies to all small California businesses that have five or more employees.

Small businesses in the Golden State need to weigh their options and decide if setting up their own 401(k) retirement savings plan is a better alternative than opting into the state retirement program. To start the conversation, here are four key things that employers should know about the state plan as the June 30 deadline approaches.

Small Businesses Will Face Large Fines if They Fail to Comply

The state will first serve a notice on a non-compliant employer. If the employer has not established a state plan or another customized plan within 90 days after receiving the notice, it will face fines that begin at $250 for each eligible employee. After 180 days, the fine doubles to $500.

State-Run Plans are Roth IRAs

Like all Roth IRAs, the California state-run plan allows employees to annually contribute up to $6,000 of their after-tax income (or $7,000 if they are over 50 years old). Note that this is significantly less than the maximum amount participants in a private 401(k) plan can contribute. A 401(k) allows employees to save $20,500 and employers, who may contribute as both an employee AND an employer, can put away up to $61,000,

Roth plans also feature tax-preferred treatment for withdrawals that employees take after retirement.

State-Run Plans are Not Your Only Option

If you want to consider an alternative retirement plan for your small business, California allows you to offer traditional 401(k)s and other plans to meet your obligations under the mandate. These plans may feature additional benefits for employees, such as higher contribution limits, more investment choices, and greater tax advantages. 401(k) advantages include:

• High contribution maximums for employers: Employers can contribute $20,500 as an employee AND another $40,500 as the employer to their own nest eggs, totaling $61,000. That’s significantly better than the $6k a Roth IRA allows.
• With a 401(k) such as Ubiquity’s, employers may qualify for a $15,000 startup tax credit: Employers can get up to $5,000/year for each of the first three years, which may cover the cost of starting your 401(k) plan.
• $1,500 automatic enrollment tax credit: employers get an extra $500/year for each of the first three years when you add auto-enrollment.

The Mandate Will Benefit Millions of California Employees

The enactment of this legislation will have an almost immediate beneficial impact on more than 7.5 million California private-sector employees. It will encourage employers to expand employee options for retirement savings with low-cost and easy-to-understand retirement plans. The state anticipates that its plan and alternative 401(k) plans will enhance California’s reputation as a favorable location to start a small business.

To speak with a retirement expert on which plan is right for your small business, reach out to Ubiquity today.

Proposed Expansion of the SECURE Act and What it Means for Retirement

Siân Killingsworth / 8 Jun 2022 / Small Business 401k

On March 29th, 2022, a proposed expansion of the Setting Every Community Up for Retirement Enhancement Act of 2019 Act passed the House with a 414-5 vote. While the so-called SECURE Act 2.0 must still pass the Senate — which has its own proposals — and receive a signature of approval from President Biden, increases in retirement security may soon come our way.

Here are some of the proposed changes as of Spring 2022:

SECURE Act 2022 Eligibility

Currently, plans have the option to prevent employees that work under 1,000 hours from becoming eligible in a retirement plan. However, most notably, the SECURE Act 2.0 would allow part-time employees who work at least 500 hours of service for two consecutive years to become eligible to defer into the plan. Under the new proposal, the first group of long-term, part-time workers would become eligible for participation as of January 1, 2023.

Auto-enrollment

The House bill would require newly established plans to implement automatic enrollment for all eligible employees at a rate of 3% of pay. Small businesses with 10 or fewer employees and startups with less than three years in business would be exempt from the mandate. The Senate version of the bill encourages, but does not require, auto-enrollment.

Higher Deferral Limits

To promote additional savings, the SECURE Act increases the cap on payroll contributions from 10 to 15 percent of an employee’s check for Safe Harbor small business 401(k)s. Employees can still opt out, but having the ability to escalate savings up to 15 percent can be a significant enticement for mid-career hires who are looking to catch up on retirement security.

Employer Tax Credit

Present law provides for a tax credit for small employers (100 or fewer employees) that adopt a retirement plan. The credit is equal to 50% of plan start-up costs and is capped between $500 and $5,000 depending on the size of the employer. The credit is available for the first 3 years of plan adoption. This provision would modify the existing credit by increasing the 50% rate to 75% in the case of an employer with 25 or fewer employees. The provision would be effective after 2023.

Student Loan Repayment

An estimated 26% of young workers cannot afford to save for retirement because they’re paying off student loans. Under the proposed rule, students could repay their student loans and still earn their employer’s matching contribution.

Increased Savings for Older Americans

Americans aged 62 to 64 could make catch up contributions of $10,000 — up from $6,500 — with that savings considered Roth contributions, meaning they pay taxes now to enjoy tax-free capital gains at withdrawal time.

Also, required minimum distributions (RMDs) could be put off even longer. The 2019 SECURE Act increased the age of mandatory retirement withdrawal from 70.5 to 72. However, the House-passed bill increases the age of annual withdrawals to 73 in 2023, 74 in 2030, and 75 in 2033. The Senate proposal would raise the RMD to 75 by 2032 and waive RMDs for individuals with less than $100,000 in retirement savings and reduce the penalty for failing to take RMDs from 50 to 25%.

Inheritance

So-called “stretch IRAs” would no longer be allowed under the current bill, meaning that non-spouses inheriting a retirement account would need to take a full payout within 10 years of the account holder’s death, rather than stretching out disbursements over their lifetimes.

Simple, Affordable Retirement Plans for Your Small Business

Contact Ubiquity to see how our low-fee, customizable 401(k) retirement plans for your small business can help you take full advantage of Secure Act provisions. Set up your free consultation today and take the first steps toward meeting your retirement savings goals.

401(k) Employer Contribution Limits for 2022

Siân Killingsworth / 10 Feb 2022 / Small Business 401k

Every year, the Internal Revenue Service increases employer 401(k) contribution limits to adjust for inflation. It’s important for small business owners and solopreneurs to stay informed of these changes from year to year to remain in compliance and maximize future investments.

How Are 401(k) Employer Contribution Limits Different in 2022?

Employer 401(k) plan contributions face the following rules in 2022:

• The maximum employee elective deferral increased by $1,000 to $20,500
• For those age 50 and older, catch up contributions remain the same at $6,500
• The employee/employer maximum limit increased $3,000 from $58,000 to $61,000 for those under age 50
• The employee/employer maximum limit increased $3,000 from $64,500 to $67,500 for those age 50 and older
• The employee compensation limit for calculating contributions increased $15K from $290K to $305K
• The Key Employee compensation limit for nondiscrimination increased $15K from $185K to $200K
• The Highly Compensated Employee limit for testing increased $5K from $130K to $135K
• The maximum SIMPLE 401(k) contribution limit increased $1,000 from $13,500 to $14,500

What’s Notable About Changes to 2022 401(k) Plans?

Typically, the IRS allows a $500 increase in the maximum employee 401(k) deferral and a $1,000 combined employer/employee contribution every one or two years, but higher than normal inflation (5.9%) in recent months has driven these allowances much higher.

The IRS has announced changes to the tax bracket thresholds or standard deductions, and depending on which bracket you fall into, you may want to increase your 401(k) contributions to lower your taxable income for the year.

Other Important Considerations Concerning 401(k) Employer Contribution Limits for 2022

A change in company match limits for 2022 may be of particular concern to you:

• If you are both employer and employee – you may have the option to contribute to the maximum 2022 limit of $61,000 (or $67,500 if you are age 50+) if you are an entrepreneur, freelancer, or independent contractor with a Solo 401(k)
• If you are matching employee contributions – you must follow a set formula and also comply with the maximum IRS limits. This year, your matching formulas apply up to $305,000 worth of employee income, which is $15,000 over 2021 – a considerably higher amount

Ubiquity Helps Small Businesses Manage Affordable 401(k) Plans

Ubiquity offers the industry’s most affordable small business 401(k) plans with a low, flat monthly rate that allows your company to grow without worry of increasing administrative costs. When you work with us, you are free to choose your own broker.

We offer everything from traditional and Roth 401k plans to SIMPLE and Safe Harbor 401(k) plans. Contact a 401(k) plan administrator to stay current with the latest employer contribution limit changes year to year and maximize your personal wealth.