FAQs about 401(k) Retirement Savings Plans

General

What’s the definition of a 401(k)?

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.

I’m self-employed. How can a retirement 401(k) help me?

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.

What are the differences between a 401(k) and Roth IRA retirement plans?

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 2021, 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 $140,000 per year ($208,000 for couples) can’t contribute to a Roth IRA.

In 2021, participants can save up to $19,500 of their pre-tax pay in a traditional 401(k)–those 50 or older can contribute $26,000.

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 2021, the maximum employer contribution is $58,000.

Ubiquity Retirement + Savings: 401(k) vs. IRA Plans Amber Fording with Ubiquity Retirement + Savings discusses the main differences between an IRA and a 401(k) plan. Want to learn more? Subscribe to our channel and visit myubiquity.com for more information. Or visit us on social media: https://www.facebook.com/ubiquitysavings https://twitter.com/ubiquitysavings https://www.linkedin.com/company/ubiq...

I’m a small business owner. Why should I offer my employees a 401(k)?

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.

What’s a Safe Harbor Plan?

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.

Ubiquity Retirement + Savings - Safe Harbor 401(k) with Andrew Meadows Andrew Meadows, SVP of HR, Brand + Culture, discusses the benefits of using a Safe Harbor 401(k) for your company. Visit myubiquity.com/safeharbor or call 855.787.8202 for more information.

What’s the difference between 401(k) pre-tax contributions and Roth contributions?

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.

How can a 401(k)-retirement plan help small businesses?

Can I use my 401(k) early?

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.

Can I use my 401(k) early? Boris Chen, VP of Client Experience at Ubiquity Retirement + Savings, discusses options for those looking to use their 401(k) before they retire.

What to do with an old 401(k)?

There are a few options when dealing with an old 401(k), they are:

Leave the account where it is. This is usually an option if your balance is above a certain level, typically $5,000.
Roll the account balance directly into your new employer’s plan.
Roll the account over to an IRA.
Take a cash distribution.

What to do with an old 401(k) Mich, of Ubiquity Retirement + Savings, discusses your options in dealing with a 401(k) account associated with a previous employer.

Traditional vs Safe Harbor 401(k)

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.

Traditional vs Safe Harbor 401(k) Dylan of Ubiquity Retirement + Savings (http://www.myubiquity.com/) discusses the differences between a Traditional 401(k) and a Safe Harbor 401(k).

Terminations

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.

What is a 401(k) plan year?

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.

Ubiquity Retirement + Savings: What is a 401(k) plan year? How is a 401(k) plan year different from a regular year?

What is an Elective Deferral Contributions?

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.

Ubiquity Retirement + Savings: Elective Deferral Contributions What is an Elective Deferral Contribution?

What is a Defined Contribution Plan?

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

Ubiquity Retirement + Savings: What is a Defined Contribution Plan? What is a defined contribution plan?

Distributions

What Are 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.

Ubiquity Retirement + Savings: What are distributions? Distributions are part of saving in a 401(k), but what does it mean? What is a defined contribution plan?

What Are Required Minimum Distributions?

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

What is 5 views 2 0 SHARE SAVE Ubiquity Published on Nov 30, 2018 What are Required Minimum Distributions? What does it mean to increase your 401(k) contributions? Want to learn more? Subscribe to our channel and visit http://www.myubiquity.com to learn more. Or visit us on social media: https://www.facebook.com/ubiquitysavings https://twitter.com/ubiquitysavings https://www.linkedin.com/company/ubiq... Up next AUTOPLAY 9:29 How these penny-pinchers retired in their 30s PBS NewsHour 2.1M views lofi hip hop radio 24/7 🎅 chill study/relax/gaming beats Chillhop Music 4.2K watching LIVE NOW 10:37 Brutal Job Search Reality for Older Americans Out of Work PBS NewsHour Recommended for you 8:26 All the financial advice you’ll ever need fits on a single index card PBS NewsHour Recommended for you 26:47 Maxed Out: Keeping Up With the Joneses KPBS News Recommended for you 14:44 How I overcame alcoholism | Claudia Christian | TEDxLondonBusinessSchool TEDx Talks Recommended for you 12:35 Millennials in the Workforce, A Generation of Weakness - Simon Sinek After Skool Recommended for you What are Required Minimum Distributions? What does it mean to increase your 401(k) contributions?

IRA

What is an 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.

What is an IRA What is an IRA? Ubiquity quickly breaks down what exactly is an Independent Retirement Account (IRA) and how it can help you in this specially created video.

About Single(k)

How do I set up and manage my Single(k) plan?

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:

Fund your Single(k) plan with your contributions on time and
Invest those contributions through the investment vehicle of your choice.
Monitor your balance and complete any necessary tax-related forms:
If your total plan asset balance reaches $250K on 12/31, you will need to have a Form 5500EZ completed. We complete the Form 5500EZ, if requested, for a fee of $195.
File a Form 1099-R with the IRS anytime you withdraw money from your 401(k) plan (excluding loans). We complete the Form 1099R, if requested, for a fee of $95.

How does Single(k) work?

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 $58,000 in 2021 ($64,000 in 2021 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.

What is a Single(k)?

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.

How much can I save in Single(k)?

You can save up to $19,500 per year in individual contributions — either pre-tax or after-tax (Roth) contributions, or both ($26,000 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 $58,000 per individual (or $64,000 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.

How much can I save in a Single(k)? How much can you save in a solo 401(k)? Even owner-only businesses can enjoy the benefits of having a 401(k) plan.

Contributions

Does the “catch-up” contribution apply to me?

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 2021, you can contribute an additional $6,500.

What is a contribution increase?

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.

What is a contribution increase? What does it mean to increase your 401(k) contributions?

Getting Started

How long until my account is set up and ready to be funded?

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.

How do I get started?

Set up and fund your Single(k) plan in three steps:

Step 1: You will need your EIN and credit card/ACH account information to complete the online sign-up process. (Don’t have an EIN? Click here to apply for one on the IRS Web site.)
Step 2: Complete the online sign-up process. (This will take about 15 minutes.)
Step 3: E-sign the appropriate Single(k) documents at enrollment. You can then download your documents and Single(k) beneficiary form at this time.
Schwab clients:  If you choose Schwab as your brokerage firm, you’ll need to complete and return the necessary Schwab application. (See below for information on Roth.) About 7-10 business days after we receive your Schwab application, you will receive a Welcome Kit with your new Schwab account number and instructions on how to start saving.
Other brokerage firm (not Schwab):  If you select a brokerage firm other than Schwab, you will need to contact that firm and set up an account for your business. The name of the account should be [Your Company Name or Your Name (if sole proprietor)] Retirement Trust.
Note for funding Roth (after-tax) contributions:  If you plan to make after-tax Roth contributions, you MUST open an additional brokerage account and name it [Your Company Name] Roth Retirement Trust; pre-tax and after-tax contributions cannot be commingled in the same account.

Do I have any recordkeeping or reporting obligations with Single(k)?

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.