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

Big changes are potentially afoot for retirement plans across America.

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

What’s In SECURE Act 2.0?

Among the most impactful changes:

  • Auto Enrollment

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

  • Increased or Negated Required Minimum Distributions

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

  • Increased Catchup Contributions

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

  • Student Loan Matches

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

  • Roth Expansion

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

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

How Do the House and Senate Versions Differ?

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

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

Critics Suggest Future Improvements to SECURE Act 2021

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

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

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

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

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

4 Tips for 401(k) Administration in 2021

Dylan Telerski / 21 Jun 2021 / Business

401k Plan administration in 2021

As the economy continues its gradual recovery and Americans look forward with cautious optimism to the end of the pandemic, many have questions about the right moves to make with their retirement savings plan. Here are some tips for how to maximize your 401(k) in 2021.

1. Use a retirement calculator to make sure you’re saving enough.

If you’re in the dark about your 401(k) plan, check your most recent 401(k) statement, which may be on paper or delivered electronically. If you don’t have one of these statements handy, ask your Human Resources Department or investment manager. Then you’ll have the information you need to use an online tool – like Ubiquity’s 401(k) calculator – to see the possibilities.

  • What will your savings be when you retire?
  • How much should you be saving for retirement to live the lifestyle you desire?
  • If you put away a little more each pay period, how big an impact will it have years later?
  • What happens if you withdraw some of your retirement savings early?

All these questions can be answered in just a few minutes with a free online retirement calculator.

2. Mitigate risk of CARES Act borrowing.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was the rescue plan many Americans needed in 2020, but it was not free money. The CARES Act allowed qualified individuals to withdraw up to $100,000 from their 401(k) plans, penalty-free and authorized delayed repayments (within three years). Normally an early withdrawal would incur a 10% penalty. It also increased the amount a person could borrow (the lesser of $100,000 or up to 100% of the balance). However, it is important to remember income tax is still due on the withdrawal, though the bill can be minimized or delayed.

If you took advantage of the CARES Act retirement withdrawal in 2020, here’s what you need to do:

  • Start paying your taxes. Report one-third of the distribution on your income tax returns for 2021, 2022, and 2023. So if you borrowed $9,000, you’d pay taxes on $3,000 worth of the distribution over the next three years. This could be the best option if you’re still struggling financially.
  • Avoid having to pay taxes at all. If you can put the money back into your account over the next three years, you can avoid paying taxes on your withdrawal. If you took out $9,000, you could repay $3,000 back into your account in 2021, 2022, and 2023 – and you’ll owe $0 in taxes. This is the best option if you’ve recovered from the financial hit of the COVID-19 pandemic.
  • File an amended tax return. It’s still possible to avoid paying taxes, even if there is great uncertainty this year. Start by paying a third of your tax obligation. If by 2023 you are able to repay your account, you can file an amended return and get the taxes you’ve paid returned in a refund from the IRS.
  • Pay the whole bill up front. If your income for the year is very low, putting you into a lower tax bracket, it might be more advantageous to pay the entire tax bill this year. Some people went from a 22% tax rate down to 12% due to unemployment. In that case, it could mean a $900 tax bill difference on that $9,000 borrowed.

Failure to take care of the IRS obligations of CARES Act borrowing will result in a surprise tax bill in 2023 and hefty penalties that accumulate month after month.

Please note: Ubiquity is not a tax advisor and does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only.. 

3. Contribute more to your 401(k) plan.

Even if you do not have the financial resources to comfortably reach the $19,500 maximum 401(k) contribution for 2021, there are still a number of ways you can contribute more to your retirement this year:

  • Aim to contribute 1-5% more each pay period.
  • Increase your contribution when you get a bonus or a raise.
  • Make sure you can at least reach the company match (if applicable) as this is free money that can double savings.
  • Plan participants 50 years of age or older can contribute an additional $6,500 above this maximum limit to catchup in 2021.

4. Review your plan fees.

Fees can eat away at your portfolio balance over time. You may not have full say over investment fees if your employer manages your plan. If you have a small business 401(k) or solo 401(k), you could be overpaying for your plan administration. The lowest-cost plans, like Ubiquity’s, assess a low, flat, monthly fee for service. However, some 401(k) administrators charge per eligible participant or a percentage as an Assets Under Management (AUM) fee that puts more money in the administrator’s pocket as your balance grows over time. Administrators and investment managers can also charge expensive fund trading fees or loan servicing fees.

One way to bring down the cost is to request that your plan manager add low-cost index funds and ETFs as investment options; investing in funds with low annual fees could potentially boost a nest egg by hundreds of thousands of dollars by retirement time.

Locate your plan’s summary annual report and look under the basic financial statement section to see the total plan expenses and benefits paid. Subtracting the benefits paid from the total plan expenses will give you an idea of what you’re paying for administration. If you divide that number by the total value of the plan, you’ll see your administrative cost percentage. The average American pays between 0.37% and 1.42% in plan fees. If you’re paying a percentage that’s too high, it’s time to consider switching your 401(k) plan administrator. Call Ubiquity today to see how we can help.

If you are turning 50 in the 2021 calendar year or you’ve hit this milestone already, you can save a maximum of $26,000 in your tax-advantaged 401(k) plan. Participants 49 and under are only allowed contributions totaling $19,500.

If you’re getting close to retirement and looking for a way to save a little extra this year, the news is good. There is a special “catchup” provision that allows retirement savers over 50 to put away $6,500 extra in 2021 over the standard maximum.

How Much Can a Person 50 and Over Contribute to a 401(k) in 2021?

While the catchup contribution allowance remains a fixed $6,500 in 2020 and 2021, this amount does tend to jump in $500 increments every three to five years. From 2002-2006, the catchup contribution increased by $1,000 every year.

The catchup contribution is a helpful savings tool, assuming that Americans may not have been so diligent about funding their retirement accounts when they were younger and earning less. Saving the additional $6,500 catchup from 50 to 65 can potentially result in an extra $50,000 to $100,000 in total savings.

What Changed in 401(k) Limits From 2020-2021?

The thresholds for maximizing traditional IRAs, Roth IRAs, and the Saver’s Credit all increase in 2021, as does the maximum employer/employee contribution.

Here’s where someone 50 or over can benefit, particularly high earners:

  • The phase-out range for a traditional IRA increased from $65-75K in 2020 to $66-76K in 2021. If a married couple files jointly and the spouse is covered by a retirement plan, the phase-out range is $105-125K, up from $104-124K in 2020. For a married couple filing jointly where the spouse is not covered by a retirement plan, the range is $198-208K, up from $196-206K in 2020.
  • People saving with a Roth IRA are subject to contributions based on income. Participants with an adjusted gross income less than $125,000 (single) or $198,000 (married/joint) are eligibile for the $6,000 maximum contribution in 2021. An extra $1,000 can be contributed by participants who are over 50.
  • The Saver’s Credit threshold for low and moderate income workers is $66,000 for married couples filing jointly (up from $65,000 last year) or $49,500 for head-of-household filers (up from $48,750), and $33,000 for singles or married filing separately (up from $32,500).
  • The employer/employee maximum, also the Solo 401(k) maximum, increased from $57,000 to $58,000.

Who Is Considered a ‘High Earner’ or ‘Highly Compensated Employee’ in 2021?

If you’re participating in a small business 401(k), your earning status may determine the maximum you can contribute to your 401(k).

In 2021, a Highly Compensated Employee (HCE) is defined as:

  • Someone owning more than 5% of the company.
  • Someone earning at least $130,000 in 2020 (up from $125K in 2019) from the business.
  • Someone who ranks in the top 20% of highest-paid workers in the company (if applicable).
  • A spouse, child, grandparent, or parent of someone who owns more than 5% of the same company.

If you’re an HCE in your fifties, you’ll be limited by your plan’s HCE maximum. Generally speaking, contributions made by HCEs cannot be “excessive” when compared to those of non-HCEs. For instance, if the average plan contribution by non-HCEs is 4%, then the most an HCE can contribute is 6%. So, say you make $150,000 and want to max out your contribution at $26,000. You may find the most you can contribute is $9,000 (6% of your salary). If you contribute too much, the excess will be refunded to you, and you’ll have to pay taxes on that amount. The purpose of 401(k) contribution limits for high earners is to ensure that the 401(k) plan does not unfairly discriminate against the average worker. There are ways around this limit – for instance, you may switch to a Safe Harbor plan and make employer contributions to all plan participants.

Contact Ubiquity to learn more about setting up a 401(k) for your small business. We provide low-cost, easy-to-manage retirement plans to help employers and employees reach their savings goals.

Whether you’re a small business owner or employee, seeing how much other companies match on their 401(k)s can give you a valuable measure of how generous your own plan is, and help you to adjust your own contributions.

Given the economic uncertainties resulting from the COVID-19 pandemic, many employees may be wondering if company matches will be reduced in 2021, and if so, how this will affect their savings goals for the year.

The good news is that though an estimated 11.5% of small companies suspended or reduced their employer match during the COVID-19 crisis of 2020, most of these employers said they plan to reinstate the matching contributions in 2021. Overall, about 51% of employers who offer a 401(k) also provide matching contributions.

If your employer is increasing their match in 2021, it could be a great opportunity to take advantage of this free money and set more ambitious savings goals. If your employer decreased their match in 2020 and will not be restoring their contributions to previous levels in 2021, you may want to consider increasing your own contributions to make up for the shortfall.

No matter what strategy you choose, investing in a 401(k) plan is one of the best ways to ensure a comfortable retirement. Small business retirement plans that offer employer-matched funds provide a generous incentive to encourage employees to save as much as they can.

Partial 401(k) Matches in 2021

Some employers choose a partial match plan, which means they put in a portion of the amount you put in, based on a set formula, up to a certain amount. The typical partial 401(k) match is 50 cents on the dollar, up to 6% of an employee’s salary. So, for instance, an employee earning $100,000 a year might contribute up to $6,000 and receive $3,000 from the employer in matching funds.

Full 401(k) Matches in 2021

Employers can also choose a plan with a “dollar-for-dollar” match, with the most common being dollar-for-dollar, up to a maximum 5% of an employee’s salary. So, using the same example, the employee earning $100,000 might put in $5,000 as 5% of his salary. The employer would then contribute another $5,000. If the employee put in $2,000, the employer would contribute $2,000. If the employee put in $6,000, the employer would contribute $5,000, as per the policy limit.

Safe Harbor Matching Formulas in 2021

Another type of 401(k) plan, popular particularly among small businesses with a handful of highly compensated employees, is the Safe Harbor plan – which exempts them from annual ADP and ACP nondiscrimination testing, in exchange for agreeing to make generous and fully vested 401(k) contributions to all eligible employees.

The most common formulas for 401(k) matching contributions are:

  • Basic Match: 100% match on the first 3% put in, plus 50% on the next 3-5% contributed by employees.
  • Enhanced Match: 100% match on the first 4-6% put in.
  • Nonelective Contribution: 3% (or more) of employee compensation, regardless of employee deferrals.

401(k) Limits in 2021

Since 401(k)s are tax-advantaged savings plans, the Internal Revenue Service places an upper limit on what may be contributed by employers and employees each year. The maximum Traditional and Safe Harbor 401(k) limits in 2021 are:

  • $19,500 in employee contributions.
  • $6,500 in additional employee catchup contributions for those over 50.
  • $38,500 in employer funds OR $58,000 (plus $6500 catchup if applicable) in total employer/employee funds.

SIMPLE 401(k) Limits

SIMPLE 401(k) limits are $13,500 for employee contributions. Those over 50 could contribute another $3,000. Employer 401(k) contributions are subject to an employee compensation cap, which is $290,000 for 2021.

Empower your employees with the gift of retirement savings

Ubiquity is a leading provider of small business 401(k) plans. We are happy to help you start a new plan, change an existing plan to a different type, or arrange employer matching contributions. When you choose us as your plan administrator, we communicate with employee plan members to ensure they know how to reach contribution limits and maximize their retirement savings. Contact us to set up your affordable and easy 401(k) plan today.

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.

COVID has taken its toll on 401(k) retirement plans, with about 8% of businesses (covering approximately more than 46,000 plans) having cut 401(k) contributions since the start of the pandemic.

While small businesses are more likely to have reduced matching or discretionary contributions as a cost-saving measure, the great majority of companies were able to maintain their retirement contributions in 2020.

Contribution Changes

According to the Plan Sponsor Council of America, more than 1 in 10 small business 401(k)s with fewer than 50 participants have made COVID-19 related changes to their matching contributions within the past year. Organizations with over 5,000 participants were 3x more likely to stay the course.

  • Almost 4 percent of 401(k) plans stopped paying a match to workers entirely.
  • 1.5 percent reduced their match.
  • 1 percent eliminated non-matching contributions.
  • 1.5 percent reduced non-matching contributions.

Though many small business employers have suspended or reduced their contributions this year, more than 90% are still contributing – which is in stark contrast to what happened during the 2008 financial crisis. A September survey by Willis Towers Watson found that most employers that suspended or reduced contributions this year plan to reinstate them by 2021.

Suspending the employer match greatly decreases plan participation and deferral rates, so it’s good that employers are taking advantage of government assistance like the Payroll Protection Program, rather than altering their 401(k)s.

Legislation Amending Loan Rules

Plans are not obligated to incorporate aspects of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, but more than half of small business plans are allowing participants to take advantage of relief by:

  • Permitting workers under 59.5 to withdraw funds as (taxable) income, without the 10% penalty.
  • Allowing increased 401(k) plan loan amounts (up to 100% of the balance, rather than the usual 50%).*
  • Pausing repayment of existing loans that were due through December 1, 2020.
  • Letting workers defer loan payments for up to one year, and, if taken for a COVID-19 hardship, allowed to repay gradually over three years.

Initially, there was not much of an increase in plan loans or withdrawals for small businesses early in 2020, but a quarter of small business 401(k) sponsors reported use of the loan feature as 2021 inched nearer. Nearly 40 of plans noted an increase in withdrawals.

*Ubiquity did not allow for this plan provision

Ubiquity Helps Small Businesses Weather the COVID-19 Crisis

Ubiquity is one of America’s leading administrators of 401(k) plans for small businesses, offering affordable flat-fee plans geared specifically toward small enterprises with fewer than 50 employees, independent contractors, and self-employed workers. We are here to answer questions, provide strategic advice, and help you make the most of small business retirement plans. Easy online setup and management allows you to get started saving for retirement without delay or make changes to your plan as needed.

2021 Solo 401(k) Contribution Deadline

Dylan Telerski / 22 Mar 2021 / Business

Self employed woman saving in a solo 401k in 2021

Did you know it’s not too late to set up and make contributions to a Solo 401(k) for 2020?

Previously, in the years prior to 2020, you would’ve had to get your account established by December 31, but the SECURE Act gives solopreneurs until the business tax deadline, April 15, 2021, to sign up for a Solo 401(k) and start saving for retirement. You may also request an extension to the 2020 Solo 401(k) contribution deadline to get even more time to make your contributions for the year.

What Are the Solo 401(k) Deadlines for 2021?

  • Single LLC and C Corps have until April 15, 2022, to set up and contribute to a Solo 401(k) for 2021.
    Please note: If a plan is adopted in 2022 for 2021 you cannot make pre-tax or Roth deferrals, but you can still make after-tax and employer contributions.
  • Partnership LLC and S Corps have until March 15, 2022, to set up and contribute to a Solo 401(k).
  • If you request and receive an extension, you may have until September or October 15, 2022, or until you file your taxes.

What Are the Solo 401(k) Contribution Limits for 2021?

  • As an employee, you may contribute up to 100% of your wages to your Solo 401(k), to the maximum.
  • The maximum Solo 401(k) contribution limit for employees is $19,500 in 2021.
  • If you’re over 50, you may contribute an additional $6,500.
  • As employer, you can reserve up to 25% of the business entity’s income, to the maximum.
  • The maximum limit for total employee/employer contributions is $58,000 in 2021.
  • If your spouse works for the business, the same allowances may be made on his or her behalf.

Should You Explore Solo 401(k) Plans in 2021?

Solo 401(k) plans offer many benefits over other types of retirement savings vehicles – particularly with the high limits of contributing as both “employer” and “employee.” The ability to choose between traditional and Roth plan types is another benefit, allowing you to choose to pay taxes on the amount invested now and enjoy a tax-free retirement, or skip on paying taxes now and allow your money to compound. If you experience financial hardship, you have the freedom to borrow from your Solo 401(k) if necessary – a key difference between a Solo 401(k) and a SEP IRA.

Opening a Solo 401(k) is easy. Online plan administrator Ubiquity will set you up in no time. If desired, you can rollover money from other accounts or set up automatic transfers from your checking, savings, or payroll accounts. If you’re interested in setting up a Solo 401(k), contact Ubiquity to establish a low-cost plan in minutes.

During his 2020 campaign, President Joe Biden proposed changes to 401(k) retirement plan rules that would likely benefit low and middle-income earners. In this blog, Ubiquity breaks down the potential impact of the proposed changes.

Traditional 401(k) Regulations

Traditionally, employees in 2021 could contribute up to $19,500 a year. Employers (or self-employed individuals) could save up to a combined maximum of $58,000. Savers can set aside an additional $6,500 in catch-up contributions if they’re over 50. The amount saved is deducted off income for the year, thus reducing their taxable income.

For instance, a person earning $200,000 a year putting in 10% to a 401(k) would only pay taxes on $180,000. Yet, a person earning $40,000 who contributes the same 10% would be taxed on $36,000. Lower earners would not reap as much in tax savings and are less incentivized to save. Employees who don’t save enough for retirement may work well beyond their most productive years because they have to, which decreases company performance and morale.

Biden’s 401(k) Plan

At this point, there is still much we don’t know. Biden says the plan would “equalize” the incentive system by replacing tax-deductible contributions with a flat tax credit for every dollar saved. The exact amount of the credit is yet-to-be-determined, but the Urban-Brookings Tax Policy Center estimates a 26% credit.

So, under this plan, if a person contributes $100, the IRS will issue a $26 credit. Someone earning $600,000 would get the same tax break as someone making $60,000 – a $260 tax credit for a $1,000 contribution. As a “refundable” credit, employees receive the full refund, even if it’s more than what they owe.

By and large, the plan would benefit lower and middle-income earners more, while high earners may move to Roth 401(k) accounts.

Additional proposals of Biden’s small business retirement plan include:

  • Automatic Enrollment: 

    Under Biden’s plan, almost all workers will be given the opportunity to conveniently save for retirement at work with a 401(k) savings plan.

  • Federal Backing for Multi-employer Defined Benefit Pension Plans: 

    Forthcoming proposals will seek to provide federally backed loans to underfunded multiemployer defined benefit pension plans.

  • Social Security Payroll Taxes: 

    High-income earners may be required to pay Social Security taxes on a larger proportion of their income. Now, employees and employers each pay 6.2% of wages to fund Social Security. This tax applies to earned income up to $142,800 for 2021. The new plan would increase Social Security taxes for earnings above $400,000, which would be taxed at 12.4%.

  • Financial Transaction Taxes:

    Whenever someone buys or sells a security, it would be considered a taxable event. This tax would pay for new government programs. Retirement plans tend to be the largest purchasers of securities, so the additional taxes may change how plan sponsors buy and sell.

  • Top Income Tax Rates: 

    The Biden plan proposes to increase the individual income tax rate on incomes above $400,000 from 37 percent to 39.6 percent.

Start Your Small Business 401(k) with Ubiquity

Looking for the best 401(k) for your small business? Ubiquity is a leading provider of 401(k) retirement plans for small businesses, whether you’re looking for a plan that covers one or 100. Our platform provides easy online setup in minutes and management that is accessible 24/7. Ubiquity customer service extends to both employers and employees alike. We are happy to help you navigate legislative changes and advise you on the best moves for your situation, at the industry’s most affordable flat-fee rate. Small business retirement planning can be a challenge, especially when the laws are always changing. Ubiquity is here to help. New plans are eligible for up to $16,500 in tax credits over the next three years, so contact us to learn more.

Americans have expressed increased interest in Environmental, Social, and Corporate Governance (ESG) funds over the last decade.

U.S. investors have sunk $17 trillion into assets managed by companies that promote diversity and clean energy. About one-third of all professionally managed assets fit ESG investment rules. Americans invested $21 billion in ESG mutual funds in 2019 – four times the prior record. Despite the economic turmoil, 2020 ESG funds are more than double the records set in 2019. While ESG funds have grown in the last few years, workplace retirement plans have generally not been robust in exploring green investment options.

401(k) Plans and ESG Funds

Workplace-sponsored retirement plans represent a huge pot of wealth. Almost a third of all U.S. retirement assets are held in 401(k) plans. Yet, only 3% of 401(k) plans offer employees an ESG fund investment option. As a result, only a tenth of 1% of 401(k) assets are held in socially responsible funds.

Several roadblocks have prevented these investors from scooping up ESGs:

  • Retirement investment trends

    Target-date funds dominate the workplace retirement plan sphere. The emphasis placed on all-in-one funds that shift from stocks to bonds as investors near retirement are a “safe” default for all employees who are auto-enrolled. One in every $5 invested in 401(k) plans are tied up in such funds – up from one in $10 a decade ago.

  • Possible lawsuits

    Employers are afraid of going out on a limb with investments that could have higher costs or underperform. Companies that pledge adherence to ESG principles will need to live up to their disclosures or find themselves on the receiving end of lawsuits. Even though all but one ESG index fund had higher net returns this year, these lawsuits could potentially jeopardize shareholder profitability, making ESG a riskier type of investment.

  • Trump administration rules

    The Labor Department changes guidance and regulation of ESG funds with every new administration. The Trump administration issued a rule requiring employers to evaluate investments exclusively based on risk and return, rather than taking social responsibility or environmental concerns into consideration. Further, employers were explicitly prohibited from auto-enrolling workers into an ESG fund.

Are Changes Coming in 2021?

2021 has already seen significant movement toward alleviating roadblocks for 401(k) investing based on ESG factors. In March 2021, The Biden administration announced that it would not enforce the 2020 Trump administration rule that made it harder to offer ESGs in workplace retirement plans.

Start Your Small Business 401(k) Plan in 2021 With Green Investment Options

For over two decades, Ubiquity Retirement + Savings has pioneered retirement savings plans designed exclusively for small and micro businesses. Since day one, our innovative solutions and low-cost, flat fee pricing make it easier than ever for small businesses to save for their future.

Our customizable 401(k) offerings include an optional turnkey ESG investment lineup, allowing small business owners to empower employees with the opportunity to save for the future while applying their savings toward the causes they care about most.

Just like personal values, investment strategies are not one-size-fits all. Ubiquity’s sustainable investment lineup includes low-cost mutual funds and exchange-traded funds (ETFs) from Vanguard, giving your team a broad range of options based on risk and personal preference.

Offer a 401(k) plan for your team with a fully diversified investment lineup that offers options for green investors.

Learn more about socially responsible investing with Ubiquity

One of the benefits of a Solo 401(k) is that your spouse can also participate in the plan. If you both take taxable income from the same sole proprietorship, your spouse can make equal contributions.

A Solo 401(k) is designed for a business owner with NO employees. However, you may add a spouse to your plan as an exception to the rule. You may also employ:

  • 1099 contractors
  • Minors under 21
  • Union workers
  • Nonresident aliens, and
  • Part-time workers who put in less than 1,000 hours per year

If you plan to hire full-time W2 employees, you will need to stop making contributions and rollover your self-directed Solo 401(k) to a self-directed IRA or small business 401k within a year.

What Is the Benefit of Adding a Spouse to a Solo 401(k)?

A married couple with a Solo 401(k) can contribute a maximum of $114,000 per year for retirement as both employer and employees. If you and your spouse are over 50 years of age, total contributions can reach $127,000. Once the plan reaches $250,000 or more in assets, Form 5500-SF will need to be submitted to the IRS.

Get Your Complimentary Guide to Solo 401(k) plans

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How to Open a Solo 401(k)

Starting a Solo 401(k) online with Ubiquity takes only a few minutes. To get started, you’ll need an Employer Identification Number. You can choose your own investments or work with a broker of choice to select mutual funds, index funds, ETFs, individual stocks and bonds, or real estate investments.

Ubiquity handles all the day-to-day accounting and management for a low monthly fee, while you focus on growing your retirement nest egg. You can open your account at any time, but you’ll need to file the paperwork by December 31 to make it count for this year. Any contributions made until April of next year can be used to reduce tax liability for the year.

How to Include Your Spouse in Your Solo 401(k)

If you’re a sole proprietorship, your spouse will receive a W2 as an “employee.” This solution is best if the spouse has minimal duties in the business.

You can also choose to file as a partnership, where each partner receives a K-1 (Form 1065). The partnership bypasses income taxes, passing profits and losses onto each partner. The IRS views this structure as ideal if both partners contribute materially to the business.

A Qualified Joint Venture may be possible if both spouses work and contribute materially to the business and file a joint tax return. Each spouse reports income gains, losses, deductions, and credits separately on Form 1040 Schedule C.

Spouses can also form LLCs, and C or S corporations.

If you have any additional questions about starting a new Solo 401(k) or adding a spouse to an existing Solo 401(k), don’t hesitate to contact Ubiquity.

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44 Montgomery Street, Suite 3060
San Francisco, CA 94104
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© 2021 Ubiquity Retirement + Savings
Privacy Policy
44 Montgomery Street, Suite 3060
San Francisco, CA 94104
Support: 855.401.4357

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