Get the Basics on These Most Frequently Asked Questions About 401(k)
Ubiquity Retirement + Savings™ takes the pain out of 401(k) plans, by doing the heavy lifting for your small business.
Only Ubiquity gives small business owners access to 401(k) experts in addition to industry leading low flat-fees. Each sales expert has over a decade of experience assisting business owners in 401(k) plan design.
General
Business owners, including those who are self-employed, can start a 401(k) plan for themselves and their employees, if applicable. A 401(k) plan enables businesses to meet retirement planning and saving goals while taking advantage of business and personal tax benefits. With a Ubiquity 401(k) plan, retirement contributions can be either pre- or post-tax, with funds being deposited directly from an employee’s paycheck each pay period. Many companies also match a portion of their employees’ contributions.
A solo 401(k) plan, is designed to provide all the benefits of a big 401(k) plan, including maximum tax savings for self-employed individuals with no full-time employees other than the business owner and a spouse, if applicable.
The major differences between a traditional pre-tax 401(k) and a post-tax Roth IRA are around contribution maximums, taxes, and investment options. Since individuals open Roth IRAs directly with an investment firm, there are no employer contributions. Also, Roth IRAs are funded with post-tax income, so employees don’t pay income taxes when they withdraw the amount they deposited and any accrued interest after they retire. And finally, since participants manage the Roth IRA themselves, their investment choices can be broader than with a pre-tax 401(k).
Roth IRA contribution limits are much lower than the limits of pre-tax 401(k) plans. In 2022, the maximum annual contribution to a Roth IRA is $6,000 for those under age 50 and $7,000 for those 50 and up. Also, individuals earning more than $144,000 per year ($214,000 for couples) can’t contribute to a Roth IRA.
In 2022, participants can save up to $20,500 of their pre-tax pay in a traditional 401(k)–those 50 or older can contribute $27,000.
With a 401(k) plan, businesses can choose to make matching or profit-sharing contributions, but the total combined amount cannot be greater than an employee’s income for the year. For 2022, the maximum employer contribution is $61,000.
Saving in a 401(k) provides several benefits to business owners and their employees, as well as those who are self-employed. In addition to providing a more financially secure future upon retirement, there are many tax benefits. For example, with a traditional pre-tax 401(k), contributions are taken directly from payroll before income taxes are withheld, which lowers an individual or business owner’s taxable income for that year.
Each year, a 401(k) plan needs to pass specific tests designed to keep it from becoming a plan that unfairly benefits the company’s high-earning employees. If the 401(k) fails these tests, the business owner can move to a Safe Harbor 401(k) plan, which allows the plan to bypass these tests in exchange for additional contributions from the business owner. Additionally, with a Safe Harbor 401(k) plan, business owners and any highly-compensated employees can maximize their contributions instead of being limited by the amount lower-paid employees contribute.
The main difference between traditional and Roth 401(k) is how contributions are made. Traditional 401(k)s are funded with pre-tax deductions while Roth 401(k)s fund with post-tax contributions.
Saving in a 401(k) provides several benefits to business owners and their employees, as well as those who are self-employed. In addition to providing a more financially secure future upon retirement, there are many tax benefits. For example, with a traditional pre-tax 401(k), contributions are taken directly from payroll before income taxes are withheld, which lowers an individual or business owner’s taxable income for that year.
Yes, you always have the right to withdraw some or all contributions and their earnings from your 401(k) and every withdrawal will be subject to income taxes. Any taxes or penalties you might owe on that withdrawal will depend primarily on your age.
There are a few options when dealing with an old 401(k), they are:
A Safe Harbor 401(k) plan provides a minimum level of contributions to all employees, freeing owners and highly compensated employees to receive larger profit-sharing payments.
A Safe Harbor 401(k) is easier and less expensive to administer than a traditional 401(k), but the cash needed to fund employer contributions will likely be higher overall.
If you wish to terminate your account, contact us via email or phone, and we will email you the termination form to complete. Note: If you will be shutting down your Single 401(k) plan, you will be required to liquidate your 401(k) account at your custodian and file a final Form 5500EZ to report that the plan has been terminated. If you would like for us to complete the Form 5500EZ for you, please make a note of it on your termination form. The fee for us to complete the Form 5500EZ is $195.
A plan year is the 12 month period that a 401(k) operates on. However this does not have to follow the calendar year, for example, it can be from May 1- April 30 instead of the usual January 1 – December 31.
Elective Deferrals are amounts contributed to a plan by the employer at the employee’s election and, except to the extent they are designated Roth contributions, are excludable from the employee’s gross income.
A defined contribution plan is retirement plan that’s typically tax-deferred, like a 401(k) in which employees contribute a fixed amount or a percentage of their paychecks in an account that is intended to fund their retirements. The employer will generally match a portion of employee contributions as an added benefit to help retain and attract top talent. These plans place restrictions that control when and how each employee can withdraw from these accounts without penalties
Distributions
Distribution is the word the IRS and the financial industry use to talk about withdrawing money from an employer-sponsored retirement plan or any other tax-deferred retirement plan, like an IRA. It’s important to note that regular income taxes will still apply.
Your required minimum distribution also called an ‘RMD’, is the minimum amount you must withdraw from your account each year. You generally have to start taking withdrawals from your IRA, SEP IRA, SIMPLE IRA, or retirement plan account when you reach age 72
IRA
An Individual Retirement Account (IRA) is an account set up at a financial institution that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis. There are 3 main types of IRAs: Traditional IRA, Roth IRA, and Rollover IRA. Each IRA has a different set of advantages.
Or schedule a free consultation with a retirement specialist.
About Single(k)®
Sign up — Enroll in our Single(k)® plan via the enrollment link on the website. Follow your plan documents — Once the plan is set up, you’ll need to follow the plan provisions:
The Single(k)® retirement plan combines the convenience of 401(k) payroll deductions with the flexibility of a profit-sharing plan. With Single(k)®, you can set aside pre-tax or Roth (after-tax) money and also make a profit-sharing contribution if you so choose, allowing you to save up to $61,000 in 2022 ($67,500 in 2022 if you are age 50 or older). You won’t pay taxes on your pre-tax savings or their earnings until you withdraw the money at retirement.
Single(k)® is a flexible, easy and cost-effective way for a business owner like you to maximize your retirement savings. With tax-deferred savings of up to $58,000 for 2021 ($64,000 if you are age 50 or older), Single(k)® offers all the savings potential of a typical 401(k) plan, but it’s designed specifically for owner-only businesses or those with part-time employees. This includes sole proprietorships, closely held family businesses and corporations.
You can save up to $20,500 per year in individual contributions — either pre-tax or after-tax (Roth) contributions, or both ($27,000 for those age 50 or older). Although it’s not required, you can make a profit-sharing contribution for a total contribution of up to $61,000 per individual (or $67,500 for those age 50 or older) depending on the type of company you have. For corporations: The profit-sharing contribution allocation cannot exceed 25% of compensation as defined by the plan. For sole proprietors or partners: The profit-sharing contribution allocation cannot exceed 20% of your company’s net earned income.
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Contributions
Catch-up contributions are an increased amount you can save in a retirement plan if you are age 50 or older.
If you turned 50 or older in 2022, you can contribute an additional $6,500.
Work retirement plans are usually set up so your contribution is taken as a percentage of your paycheck. For example, if you make $60,000 and elected to contribute 6% to your 401(k) plan, your contributions will add up to $3,600 per year. A contribution increase would mean you decide to contribute a larger percentage of your income.
Getting Started
Once you have enrolled in our Single(k)® plan, your account with us is active. You will then open an account at the custodian of your choice. This is where your Single(k)® assets will be held and where you make your contributions. The account set up time varies by custodian.
Set up and fund your Single(k)® plan in three steps:
With Single(k)® you are responsible for keeping track of money going in and out of your 401(k) plan to ensure that limits are not exceeded and for government reporting purposes. You are also responsible for any government reporting (Form 1099-R and Form 5500EZ). We can help you with your reporting (for a $195 fee) or your personal accountant can assist you. Here is what you need to keep track of:
Contributions: All contributions into the plan, whether they are individual contributions (pre-tax or after-tax), rollovers into the plan, or profit-sharing contributions.
Withdrawals: Withdrawals from the 401(k) plan (excluding loans) must be reported on the Form 1099-R and sent to the IRS. The Form 1099-R is not required if you take a loan.
Roth 401(k)
The combined amount you may contribute to a retirement plan is limited to $20,500 for 2022 ($27,000 if you are age 50 or older). Your individual contributions can be pre-tax, after-tax Roth contributions or a combination of both.
Yes! Your contributions can be pre-tax, after-tax Roth contributions or a combination of both in the same year. In 2022, you can make up to $20,500 in individual contributions ($27,000 for those age 50 or older).
A Roth 401(k) is a hybrid between a Roth IRA and a 401(k) plan. In a Roth 401(k), earnings on after-tax contributions grow tax-free, just like a Roth IRA. However, the contribution limits in a Roth 401(k) are significantly higher than a Roth IRA — $20,500 ($27,000 if age 50 or older) in 2022, compared to $6,000 for a Roth IRA.
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44 Montgomery Street, Suite 3060
San Francisco, CA 94104
Support: 855.401.4357
© 2023 Ubiquity Retirement + Savings
Privacy Policy
Do not sell my info
44 Montgomery Street, Suite 3060
San Francisco, CA 94104
Support: 855.401.4357