Category: Small Business 401k

3 Reasons Why Automatic Enrollment is Awesome

Siân Killingsworth / 23 Nov 2022 / 401(k) Plan Information, Retirement Trends, 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.

2023 Retirement Contribution Limits

Siân Killingsworth / 17 Nov 2022 / 401(k) Resources, Small Business 401k

Wonder how much you can save for your retirement in 2023?

Download the Ubiquity Retirement + Savings 2023 Contribution Guide

The IRS has announced the 2023 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 2022 to 2023, 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: 

2023 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 2023, this limit has increased from $61,000 to a new maximum of $66,000. 

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

2023 Roth and Traditional IRA Contribution Limits

2023 Health Savings Accounts (HSA) Contribution Limits 

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

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

How to Start a 401(k) for Your Small Business

Siân Killingsworth / 27 Oct 2022 / 401(k) Plan Information, 401(k) Resources, Small Business 401k

Along with competitive compensation and robust healthcare benefits, offering a retirement savings package such as a 401(k) is a crucial way for large and small businesses alike to attract and retain top talent.

Implementing a plan is more affordable than ever, and you’ll receive a tax credit for plan startup costs and a tax deduction for expenses paid.

But how do you start a 401(k) for your small business? Here’s a step-by-step overview of where to begin, along with answers to some common employer FAQs.

5 Steps to Starting a 401(k) for Your Small Business

The IRS heavily regulates the process of establishing and maintaining a 401(k). As a result, many small businesses outsource the job to a knowledgeable small business financial advisor to set up and administer the retirement plan throughout its life.

Still, every owner should understand the steps involved in starting their small business 401(k):

• Decide Which Plan You Should Establish

Will you offer a traditional, simple, or safe harbor 401(k) plan? Or maybe a simple IRA plan is best for you. There are plenty of 401(k) plan types to choose from, so it’s essential to do your homework and determine the plan that fits your immediate needs and long-term goals.

• Understand Your Fiduciary Responsibilities

While you’re not responsible for how your employee’s 401(k) selections perform, you are responsible for acting as a fiduciary. That means you’re legally bound to make choices about your 401(k) plan as a person who owes a duty of care and trust to your employees.

Part of acting on your fiduciary responsibilities is setting up a trust for your plan’s assets and appointing at least one trustee to manage the plan investments, distribution, and other activities. This helps ensure the funds’ use solely benefits your employees and their beneficiaries.

• Draw Up a 401(k) Plan Document

This document outlines your plan’s details in compliance with the IRS. It should contain information including (but not limited to) details about your trust, fiduciaries, your contribution plans, and more.

• Establish an Organized Recordkeeping Process

You’ve drawn up the plan document and cleared it with the IRS. Now, keeping meticulous records documenting the progress of that plan is essential, including information about plan values and employee contributions. In addition, you must regularly update your participants’ census and employment data to ensure they’re still eligible for their 401(k) benefits.

• Create a Thorough Information Package for Your Plan Participants

The law requires that employers provide information to their participants about how the plan works, its features, and its benefits. It’s also essential to disclose information to both your employees and the IRS about any fees and investment changes (if applicable).

FAQs for Starting Your Small Business 401(k)

Q.) How much will it cost to set up a 401(k) for my small business?

Initial fees typically run anywhere from $500 to $3K. How much you’ll pay depends upon the type of benefits you choose, the size of your business, consultation fees associated with your retirement service provider (if applicable), and more. For more information, click here for the Department of Labor’s retirement plan fees and expenses guide.

Q.) How long does it take for a small business to set up a 401(k)?

That all depends upon how thorough you are. If you submit your plan with missing or incomplete information, it could mean several time-consuming rounds with an Implementations Specialist to get the correct information uploaded. You could also end up paying fees because of mistakes you accidentally made from rushing through the details of your plan.

Q.) How much should I contribute to the plan?

You can contribute as much as you’d like within IRS limitations. Remember that employer contributions are tax deductible on your small business’s federal tax returns. Just as importantly, think about the positive impact matching or profit-sharing will have on morale, your relationship with your employees, and your employee’s financial health.

Q.) How much should participants contribute?

Participants may contribute as much as they wish within IRS limitations. Encourage your employees to research the investment options available and educate them on the benefits of a 401(k) to help make comfortable retirement a reality.

Q.) What are the maintenance costs for maintaining a 401(k)?

Once you select a 401k for your small business and get it up and running, you’ll need to pay fees associated with ongoing operations, services, investments, and expenditures for matching contributions.

Starting a 401(k) promotes employee morale, which leads to improved retention and a better ability to attract new talent. It also helps contribute to your and your employees’ financial well-being. The knowledgeable professionals at Ubiquity are here to assist with customizing a low-cost, easy-to-manage retirement plan for your small business.

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.

How to Start a 401(k) for My Small Business

Dylan Telerski / 10 Feb 2022 / Small Business 401k

A small business 401(k) is an excellent way to show your team you care about their future.

Not only are 401(k)s ideal for boosting morale and sustaining a committed workforce, but they also offer benefits for your own retirement and tax savings. The time has never been better to start a 401(k), as companies with fewer than 100 employees will receive up to a $5,000 annual tax credit to offset the cost of administrative fees for the first three years.

To start a 401(k) plan for your small business, you’ll need to:

• Consider which plan you might want.
• Find the right 401(k) provider that meets your needs and goals.
• Determine whether you’ll match, create a plan document, and set up an asset trust.
• Devise a recordkeeping system.
• Let employees know about their participation options.
• Maintain your plan.

Consider which 401(k) plan you might want.

There are several types of 401(k) plans:

Traditional 401(k)s

Many businesses choose the Traditional 401(k) to offer multiple investment options to employees and a way of saving for retirement with tax advantages. Many employers match employee contributions and deduct a portion of employee salaries from their tax obligations for the year. With a traditional plan, no tax is paid on the income put into the account at the time – but rather, tax is paid when money is withdrawn in retirement.

The 2022 limit is $20,500, plus $6,500 additional if you are age 50 or older and want to maximize your savings later in the game.

Roth 401(k)s

Most plans have the option of paying taxes when you put the money into the account rather than when you take it out. This is called a Roth contribution.

Like pre-tax deferrals, Roth 401(k) contributions are made to the plan by employees through payroll deduction. However, Roth contributions are deducted from wages after payroll taxes have been calculated. The investment earnings on Roth contributions grow tax-deferred while held in the plan, just like traditional pre-tax contributions. This money then has the potential to be withdrawn entirely tax-free when the saver hits retirement.

The 2022 limit for all 401(k) contributions is $20,500, plus $6,500 additional if you are 50 or older. This includes both Roth and pre-tax contributions.

Safe Harbor 401(k)s

A Safe Harbor 401(k) is ideal for high earners looking to invest aggressively in a retirement account. Unlike traditional plans, a Safe Harbor does not need to pass deferral and match discrimination tests to prove that it benefits all employees and not just highly compensated executives. Employers can choose to make a non-elective contributions of 3% or a match of up to 6%.

In 2022, business owners with Safe Harbor plans can contribute up to $61,000 plus $6,500 in catch up contributions for owners age 50 or older.

SIMPLE 401(k)s

A SIMPLE 401(k) is a hybrid of an IRA and a 401(k). These accounts allow you to bypass compliance testing and enable employees to take out loans from their accounts, if necessary. Employees are immediately vested and there is less flexibility for employers to customize.

For 2022, the maximum contribution is $14,000 plus $3,000 in catch up contributions for people age 50 or older.

Solo 401(k)s

You can open a 401(k) for yourself (and a spouse or partner), even if you have no other employees as a sole proprietor, freelancer, or startup entrepreneur. You may make contributions as an employer and employee to maximize your tax-advantaged savings.

The contribution limit of $61,000 (plus $6,500 for people age 50 or older) in 2022 is higher than with a SEP IRA.

Find the right 401(k) provider that meets your needs and goals.

Still not sure which plan is right for you? Download our 401(k) guide to find the right 401(k) plan for your small business.

A 401(k) plan provider covers the administrative burden of establishing and running the plan, which can include:

• Auto-enrollment
• Employee support
• Loan administration
• Trust setup
• Tax filing

You can expect to pay a monthly charge for this service. Some 401(k) providers work with preferred brokers, while others offer the freedom to choose any broker. Depending on the broker, this financial adviser may choose the investments for the plan or help plan participants choose their own investments.

Determine whether you’ll match, create a plan document, and set up an asset trust.

Next, you’ll need to consider: How much do your employees want to invest in their 401(k)s? How much are you willing to contribute? Keep in mind, any contributions you make can be deducted as a business expense.

The maximum contribution is $61,000 for employees under age 50 and $67,500 for employees age 50 or older. Depending on the type of 401(k) established, certain rules may apply. You may choose to match 50 cents on the dollar, dollar-to-dollar, a percentage of salary, or up to certain limits.

All of this should be clearly spelled out in a legally binding plan document written by the financial institution and professional tasked with handling the plan. This document will also explain employee eligibility or vesting requirements, contribution amounts, and an explanation of how contributions and distributions will be made. A trust will need to be set up to hold the assets.

Devise a recordkeeping system.

You will need a system for tracking employer and employee contributions, earnings and losses, plan investments, expenses, and distributions. Many providers, including Ubiquity on most plan types, handle recordkeeping on your behalf. Otherwise, you may consider payroll software or SaaS payroll services.

Let employees know about their participation options.

Employees can only participate in your generous incentive if they know it exists. A plan provider can give you materials that describe the plan’s benefits, features, and employee rights, which you may then circulate. Employee seminars and presentations can be conducted to maximize participation.

Maintain your plan.

All plans require plan information reporting to employees, payment of plan provider fees, summary reports for plan participants, and completion of Form 5500 for the IRS.

Some plans may require Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) nondiscrimination tests that compare salary deferrals of highly-compensated employees vs. those of non-highly compensated employees.

How many employees do you need to have a 401(k) plan?

To offset the cost of administering a new plan, companies with fewer than 100 employees can receive up to $5,000/year in tax credit over three years (worth $15,000 in total). Plus, you can gain an additional $500 per year in tax credit over three years if you add an auto-enrollment feature to your plan. However, you can start a 401(k) plan even if there are no other employees other than yourself or yourself and your spouse!

It’s a common misconception that only large and mid-sized businesses can afford to offer a 401(k) to their employees in 2022. In the past, 401(k) providers charged small businesses exorbitant fees. Now, you can work with Ubiquity to find small business 401(k)s that are easy and affordable with one flat monthly rate and no assets under management fees – allowing you to grow your 401(k) without paying more.

How much should an employer contribute to the plan?

A common employer match is 50 cents on the dollar up to 6% of an employee’s salary. Another common match formula is dollar-to-dollar up to 3% of an employee’s salary. About one-quarter of small business owners offer no match at all, but may provide profit-sharing contributions on a good year.

What are the benefits of a 401(k) plan compared to other retirement options?

A 401(k) plan can offer your small business unique benefits when compared to other retirement savings plans. Consider:

Tax-advantaged retirement saving: The biggest advantage of choosing a 401(k) over other retirement options like the SIMPLE IRA, SEP IRA, or profit-sharing plan is the amount of tax-advantaged saving you’re allowed. Saving more creates a bigger retirement nest egg for your future, but also helps you save today. Saving tens of thousands of pre-tax dollars will take your taxable income down a few brackets, meaning you’ll be paying a lesser percentage of your income in taxes every year you contribute.

In 2022, individuals may contribute up to $20,500 to their 401(k) plans. Employers offering matching or non-elective contributions can increase this amount to a maximum of $61,000. Savers who are age 50 or older are also allowed a $6,500 catch-up contribution on top of these limits. Employers are allowed to set their own matching formulas, but they must pass annual non-discrimination tests to ensure fairness for all employees.

By comparison, the 2022 Traditional IRA limit is $6,000 with a $1,000 catch-up contribution allowed for those age 50 or older. You can set aside more with a SIMPLE IRA ($14,000 + $3,000 catch-up) or a SEP IRA ($61,000 + $1,000 catch-up). Here’s the caveat: though the SEP IRA has a high limit, only the employer may contribute to this limit, and whatever percentage of compensation employers wish to contribute to their own plans they must also contribute for each eligible employee.

Employer matching contributions: Matching contributions are a top benefit of 401(k) plans. Typically, employers will match a set percentage of their employees’ contributions. For example, a person earning $50,000 a year, with a 100% match up to 3% 401(k) plan, could expect to receive an extra $1,500 from the employer as long as the individual also contributes as much.

Eligibility: Anyone age 21 or older who meets the employer’s service requirements can save the maximum amount of money in a 401(k), no matter how much they earn. To contribute the full amount to IRAs, account holders must have a modified adjusted gross income worth less than $129,000 (single) or $204,000 (joint). Contributions begin phasing out above those amounts, and you can’t contribute once your income reaches $144,000 (single) or $214,000 (joint).

Investments: Participants in a 401(k) plan are typically limited to the investment options selected by their employers – typically a range of mutual funds – but these are relatively safe bets offering stable returns. IRAs typically allow greater investment choices, including a full suite of stocks, bonds, CDs, mutual funds, ETFs, and more. Yet, without investment knowledge, these options can be riskier.

Contact Ubiquity to find out how to get a 401(k) plan going in as little as 15 minutes.