Category: Personal Finance

Find important information on Personal Finance from the experts at Ubiquity Retirement & Savings. Get important news that can affect your personal finances, along with tips and advice from our team of financial experts. Call Ubiquity today for a Free Consultation at 855.466.5825.

(& How to Set Yourself Up for Success)

Retirement planning is critical to securing a comfortable and financially stable future. However, market volatility can significantly affect the path to a successful retirement. So how do you contingency plan to retire during a tough market?

Step one: Take a deep breath, and start saving ASAP. Remember: Time in the market is more important than timing the market.

Understanding Market Volatility and Retirement

First, a crash course in market volatility. Economic indicators, geopolitical events, investor sentiment, and corporate performance all influence financial markets. Market volatility arises when these factors cause significant fluctuations in asset prices, leading to increased risk.

Uncertainty in the market impacts retirement planning in several ways. It can cause a significant decline in investment portfolios, meaning retirees relying on their investments may face reduced savings. Market downturns also diminish the returns on investments, potentially jeopardizing long-term goals. We highly recommend taking steps to recession-proof your small business 401(k).

Answer a few simple questions to find the optimal plan for you and your small business.

How many employees do you have?
I am a sole proprietor
(just me/or my business partner/spouse)

Or schedule a free consultation with a retirement specialist.

Challenges Faced by Retirees in Volatile Markets

One of the primary concerns is the sequence of returns risk. This risk refers to the order in which investment returns are realized. When retirees begin their retirement, a decline in the market can have a negative impact.

This is because they are forced to sell their assets at lower prices in order to cover their living expenses. This negative effect can last for a significant period of time. Check out these 4 tips for managing your 401(k) during a recession.

Strategies for Retirement Planning in the Face of Market Volatility

1. Diversification and Asset Allocation

Diversification involves spreading investments across different asset classes, such as stocks, bonds, and real estate, to reduce risk. Asset allocation determines the ideal mix of these asset classes based on individual risk tolerance and goals.

2. Long-Term Investment Approach

Retirement planning should adopt a long-term perspective, focusing on the overall goals and objectives rather than short-term market fluctuations. Everyone can benefit from the potential growth of their savings over time by staying invested for the long haul.

3. Seek Professional Financial Advice

Advisors can help you and your small business’s employees understand their risk tolerance, develop appropriate investment strategies, and make informed decisions to preserve and grow their retirement savings.

4. Regular Portfolio Reviews

Periodic adjustments may be necessary to rebalance the portfolio and maintain an appropriate asset allocation.

Mitigating the Impact of Market Volatility on Retirement Savings

Beyond investment strategies, there are additional measures you can take to help mitigate the impact of market volatility on your retirement savings:

1. Emergency Fund

Having readily available cash can help cover unexpected expenses without the need to tap into retirement savings.

2. Insurance Coverage

Having adequate insurance coverage, including health, life, and long-term care insurance, can protect retirees from unexpected medical expenses and provide a safety net during turbulent times.

3. Contingency Planning

Developing contingency plans can help retirees prepare for unexpected events. This can involve identifying alternative income sources or adjusting retirement expenses if necessary.

Adapting Retirement Plans in Times of Market Turmoil

1. Flexibility in Withdrawal Strategies

Adjust your withdrawal strategies to align with market conditions. By adopting a flexible approach, you can withdraw less during downturns so you keep the maximum amount in your 401(k) earning compound interest.

2. Adjusting Retirement Timeline

Delaying retirement by a few years can provide additional time to accumulate savings and ride out market fluctuations.

3. Exploring Alternative Income Sources

During volatile markets, retirees can explore alternative income sources to supplement their retirement savings. This can include rental income, income-generating hobbies, Social Security and more.

The Importance of Regularly Reviewing Retirement Plans

Lastly, it’s crucial for retirees to regularly review and update their retirement plans to adapt to changing circumstances. Factors such as risk tolerance, goals, and financial situations may change over time. Key considerations for regular plan reviews include:

1. Reassessing Risk Tolerance

As retirement progresses, risk tolerance may evolve. It’s important to reevaluate and adjust the investment portfolio to align with changing risk preferences.

2. Updating Goals and Objectives

Retirement goals and objectives may shift due to life events or changes in circumstances. Regular reviews ensure that retirement plans remain relevant and aligned with evolving needs.

3. Adjusting Investment Strategies

Market volatility may warrant adjustments to investment strategies. Consult with a financial advisor to evaluate whether asset allocation or investment vehicle changes are necessary.

 

 

Ubiquity is not a registered investment advisor, and the information provided herein should not be considered legal or tax advice. We recommend consulting with your financial planner, attorney, and/or tax advisor for personalized advice. 

If you’re a small business owner, employee, or just someone facing a financial emergency and wondering if you should take a 401(k) loan from your small business retirement account, this one’s for you. While this may provide a temporary (or even longer-term) solution to your financial needs, it’s important to weigh the pros and cons before you pull money from your retirement account.

Understanding 401(k) Loans

What is a 401(k) loan?

A 401(k) loan is a borrowing option available to individuals who have a 401(k). It allows you to borrow a portion of the funds you have contributed to your 401(k) and repay it with interest over a specified period of time.

If you’re a business owner, look for a small business 401(k) with flexibility when it comes to borrowing and changing contribution amounts.

How does it work?

When you take out a 401(k) loan, you essentially borrow money from yourself. The loan amount is typically limited to a percentage of your vested balance in the 401(k) account. You pay it back through regular installments that are usually deducted from your paycheck.

Answer a few simple questions to find the optimal plan for you and your small business.

How many employees do you have?
I am a sole proprietor
(just me/or my business partner/spouse)

Or schedule a free consultation with a retirement specialist.

Pros of Taking Out a 401(k) Loan for Emergency Expenses

Quick access to funds

401(k) loans can be processed relatively quickly, allowing you to address your emergency expenses promptly.

No credit check

This can benefit individuals with a less-than-perfect credit history, as your credit score does not determine your eligibility for the loan.

Lower interest rates

Compared to other forms of borrowing, such as personal loans or credit cards, 401(k) loans often have lower interest rates. The interest payments also go back into your account, making it a more cost-effective option for interest expenses.

Repayment flexibility

401(k) loans typically offer flexible repayment options. You can choose the loan duration, usually one to five years, and make regular payments through automatic deductions from your paycheck.

Cons of Taking Out a 401(k) Loan for Emergency Expenses

Potential reduction in retirement savings

When you borrow from your 401(k), the borrowed amount is no longer invested in the market, which means you miss out on potential market gains and compound interest.

Limited borrowing capacity

Some 401(k) loans have limitations on how much you can borrow. Although some providers allow loans up to the total amount of money in your account, for other providers, the maximum loan amount is typically capped at either $50,000 or 50% of your vested account balance, whichever is lower. Make sure you check with your provider what is permitted.

Repayment challenges

Loan repayments are deducted from your paycheck, reducing your take-home pay during the repayment period, so if you’re borrowing from your 401(k), make sure you’ve budgeted for a lower take home income.

Penalties and taxes for defaulting

Defaulting on a 401(k) loan can result in severe penalties and taxes. For example, the outstanding loan balance could be treated as a distribution, subjecting you to income tax and potentially early withdrawal penalties if you are under the age of 59½.

Opportunity cost of missed market gains

By borrowing from your 401(k), you miss out on potential market gains that your retirement savings could have generated. This opportunity cost should be carefully considered before opting for a 401(k) loan.

Alternatives to 401(k) Loans for Emergency Expenses

Emergency savings fund

Experts recommend having between three and six months of income saved up (just in case).

Personal loans

If you have a good credit history, obtaining a personal loan from a financial institution may offer competitive interest rates and more favorable terms than a 401(k) loan.

Credit cards

Credit cards can be a convenient short-term solution for emergency expenses–if you use them responsibly.

Home equity loans

If you own a home, leveraging the equity you have built can be an option for accessing funds in times of emergency (and often has a lower interest rate).

Factors to Consider Before Taking Out a 401(k) Loan

Before deciding to take out a 401(k) loan for emergency expenses, it’s essential to consider several factors, including financial stability, the impact of a loan on your retirement goals, and the limitations of borrowing. Weigh the pros and cons, as well as the alternatives–and if you still have questions, our small business 401(k) experts are always here to help (and here are some reasons you should chat with them).

 

Ubiquity is not a registered investment advisor, and the information provided herein should not be considered legal or tax advice. We recommend consulting with your financial planner, attorney, and/or tax advisor for personalized advice. 

Inflation is a topic that has been widely discussed in recent times, and its impact on retirement planning cannot be overlooked, especially for small business owners. Planning for retirement involves ensuring that there will be enough funds to cover expenses and maintain a comfortable lifestyle in the future. Understanding the effects of inflation and how to navigate them is crucial for effective retirement planning. In this article, we will explore the impacts of inflation on retirement and provide strategies to help small business owners and their employees prepare for it.

What is Inflation?

Inflation refers to the persistent increase in the general price level of goods and services over time. As prices rise, the purchasing power of money decreases, meaning that the same amount of currency can buy fewer goods or services. Inflation is influenced by various factors, including changes in supply and demand, government policies, and economic growth rates. It is an inherent characteristic of most economies and has a direct impact on people’s financial well-being.

The Impact of Inflation on Your 401(k)

Inflation poses significant challenges for retirees, as it erodes the purchasing power of their fixed incomes over time. Many retirees rely on fixed income sources such as pensions or annuities to sustain their lifestyle during retirement. However, as prices rise due to inflation, the value of these fixed incomes diminishes. This can lead to a gradual decline in the standard of living, making it essential to account for inflation when planning for retirement.

Answer a few simple questions to find the optimal plan for you and your small business.

How many employees do you have?
I am a sole proprietor
(just me/or my business partner/spouse)

Or schedule a free consultation with a retirement specialist.

Planning for Inflation in Retirement

When setting up a small business 401(k) plan, it is important to consider the impact of future inflation rates. While it is difficult to predict inflation with absolute certainty, historical data and economic indicators can provide some guidance. Consulting with a plan advisor or a financial advisor who specializes in retirement planning can help develop a personalized strategy that takes into account factors such as inflation, longevity, and individual goals.

Strategies for Inflation-Proof Retirement

While it is impossible to completely avoid the impacts of inflation, there are strategies that can help mitigate its effects on retirement savings. Consider the following strategies when planning for inflation:

  1. Contribute the Maximum Amount: Take advantage of the maximum allowable contribution limits to your retirement accounts. These limits increase annually to keep up with inflation. For example, in 2023, the maximum contribution to a 401(k) rose to $22,500, with an additional $7,500 in catch-up contributions for individuals age 50 and older.
  2. Employer Match: If your small business offers an employer match for employee contributions to the 401(k) plan, encourage employees to take full advantage of it. An employer match is essentially free money that can significantly boost retirement savings. And don’t forget that as the employer, you can contribute to your own retirement this way – up to the IRS limit of $66,000 in total for 2023!
  3. Budget for Rising Healthcare Costs: Healthcare costs may rise faster than the general inflation rate. It is important to account for these expenses when planning for retirement and ensure that sufficient funds are allocated to cover future healthcare needs.
  4. Regularly Monitor and Review Your Plan: Keep a close eye on your small business 401(k) plan and make necessary adjustments as needed as your business needs and company change. Stay informed about economic trends, investment performance, and changes in regulations that may impact retirement savings.
  5. Diversify Investments: Spreading investments across different asset classes, such as stocks, bonds, and real estate, can help provide a hedge against inflation. Each asset class may react differently to inflationary pressures, reducing the overall risk to the portfolio.
  6. Adjust Asset Allocation: Evaluate your asset allocation based on risk tolerance and retirement timeline. If you are a small business owner offering a 401(k) plan, consider providing options that align with your employees’ retirement timelines or offer monitoring by investment experts who have fiduciary responsibilities.

By implementing these strategies and staying proactive in your retirement planning, you can better prepare yourself and your employees for the impact of inflation. It is important to work with financial professionals who can provide guidance tailored to your specific circumstances and help ensure that your retirement plan is equipped to withstand the challenges posed by inflation.

In conclusion, small business owners need to consider the impact of inflation on retirement planning. By understanding inflation and its effects, and implementing appropriate strategies, it is possible to mitigate the erosion of purchasing power and build a retirement nest egg that can withstand the test of time. Stay informed, seek professional advice, and regularly review your retirement plan to ensure that you and your employees are well-prepared for the future.

 

Ubiquity is not a registered investment advisor, and the information provided herein should not be considered legal or tax advice. We recommend consulting with your financial planner, attorney, and/or tax advisor for personalized advice. 

Planning for retirement is a critical financial undertaking, but balancing your retirement savings with other financial goals is equally important. But while retirement is a significant financial goal, it’s not the only one you should consider.

Neglecting other important goals like emergency funds, education, homeownership, or debt management can lead to financial instability in the long run.

Assessing Your Financial Situation

Whether you’re a small business owner or an employee, your small business 401(k) plan contributions need to begin with taking inventory of your current financial situation. Take stock of your income, expenses, and existing savings.

Understand your cash flow, evaluate your outstanding debts, and analyze your short-term and long-term financial needs. This assessment will provide you with a comprehensive view of your financial health and help you make informed decisions.

If you’re a small business owner, consider potential tax savings you may be able to leverage with a small business 401(k).

Answer a few simple questions to find the optimal plan for you and your small business.

How many employees do you have?
I am a sole proprietor
(just me/or my business partner/spouse)

Or schedule a free consultation with a retirement specialist.

Prioritizing Your Financial Goals

Start by listing all your money goals and organizing them based on their importance and urgency. Emergency fund? Paying off high-interest loans? Going on vacation? While retirement savings should remain a priority, consider other goals that require immediate attention. By prioritizing your goals and overall financial wellness, you can allocate your resources more effectively.

Strategies for Balancing Retirement Savings

  1. Set up automatic contributions to your retirement accounts to ensure consistent savings. If you’re a small business owner, help set your employees up for success with automatic enrollment, too.
  2. Take full advantage of employer matching contributions to maximize your retirement savings.
  3. Gradually increase your retirement savings rate as your income grows or when you pay off other financial obligations.
  4. Take advantage of catch-up contributions allowed by retirement plans to accelerate your savings. (For 2023, catch-up contributions allow you to save an additional $7,500 a year after age 50—on top of the $22,500 contribution limit.)
  5. Utilize tax-advantaged retirement accounts like IRAs or Roth IRAs to optimize your savings and tax benefits.

Managing Debt and Expenses

Balancing your retirement savings with other financial goals requires effective management of debt and expenses. Consider the following strategies:

  1. Develop a plan to pay off high-interest debts (like credit cards and student loans) systematically. Prioritize debts with the highest interest rates and allocate extra funds towards their repayment.
  2. Create a realistic budget that aligns with your financial goals. Track your expenses and identify areas where you can cut back to allocate more towards savings and other financial goals.
  3. Explore opportunities to reduce expenses. This could include negotiating bills, finding more affordable insurance options, or downsizing certain aspects of your lifestyle.
  4. Minimize the accumulation of new debt by being mindful of your spending habits. Prioritize needs over wants and consider alternatives to borrowing, such as saving up for purchases.

Investing for Short-Term and Long-Term Goals

Balancing your retirement savings involves not only saving but also investing wisely. Consider these strategies:

  1. Spread your investments across different asset classes to reduce risk. Diversification can include stocks, bonds, real estate, and other investment options.
  2. Align your investment choices with your goals. Short-term goals may require more conservative investments, while long-term goals like retirement can tolerate more market volatility.
  3. Monitor and review your investment portfolio periodically. Make adjustments based on market conditions, changing goals, and risk tolerance.
  4. If you’re uncertain about investment strategies or need guidance, consult a financial advisor specializing in retirement planning. They can help tailor a plan that aligns with your unique financial situation.

Seeking Professional Advice

Managing multiple financial goals can be complex. Consider seeking professional advice from the following individuals:

  1. Financial Advisor: Engage the services of a certified financial advisor who specializes in retirement planning. They can assess your financial situation, develop a comprehensive plan, and provide ongoing support and advice.
  2. Tax Professional: Consult with a tax professional to optimize your retirement savings strategies and identify potential tax benefits.
  3. Estate Planning Attorney: Consider consulting an estate planning attorney to ensure your assets are protected and your wishes are carried out.

 

Ubiquity is not a registered investment advisor, and the information provided herein should not be considered legal or tax advice. We recommend consulting with your financial planner, attorney, and/or tax advisor for personalized advice. 

Taking a loan from your 401(k) can be a tempting option when you find yourself in need of funds. However, it’s important to understand the implications and potential drawbacks before making such a decision. In this article, we’ll explore the key aspects of 401(k) loans and provide insights to help you make an informed choice. 

What is a 401(k) Loan?  

A 401(k) loan allows you to borrow money from your retirement savings, specifically from the funds you have accumulated in your 401(k) account. The loan is typically limited to a percentage of your account balance or a specific dollar amount. You can borrow from any type of 401(k) plan, including from a solo 401(k).

Key Points to Consider:  

Before proceeding with a 401(k) loan, it’s crucial to understand the following aspects: 

  1. Eligibility and Loan Limits: Not all 401(k) plans offer loan options, so it’s essential to check if your plan allows loans. If it does, you will need to review the plan’s specific loan limits, which can vary depending on the plan and your account balance. Typically, you can borrow up to 50% of your vested account balance or a maximum of $50,000, whichever is less. 
  2. Repayment Terms: 401(k) loans generally have a repayment term of five years, although longer terms may be available for loans used for the purchase of a primary residence. It’s important to understand the repayment terms set by your plan, including the frequency of payments and the interest rate applied. 
  3. Impact on Retirement Savings: When you take a loan from your 401(k), the borrowed amount is temporarily removed from your retirement savings. This means the funds are no longer growing and potentially earning investment returns. It’s crucial to consider the long-term impact on your retirement savings and assess whether the benefits of the loan outweigh the potential reduction in your future nest egg. 
  4. Tax Implications: 401(k) loans are generally not subject to income taxes or early withdrawal penalties, as long as you repay the loan according to the plan’s terms. However, if you fail to repay the loan, it may be considered a distribution, subjecting you to income taxes and potentially early withdrawal penalties. 
  5. Risks and Potential Drawbacks: Taking a loan from your 401(k) carries certain risks and drawbacks. If you leave your job or are terminated, the loan may become due in full, requiring immediate repayment. If you cannot repay the loan, it will be treated as a distribution, subject to taxes and penalties. Additionally, borrowing from your retirement savings may disrupt your long-term financial goals and retirement planning. 

Answer a few simple questions to find the optimal plan for you and your small business.

How many employees do you have?
I am a sole proprietor
(just me/or my business partner/spouse)

Or schedule a free consultation with a retirement specialist.

Exploring Alternatives 

Before resorting to a 401(k) loan, it’s worth exploring alternative options. These may include creating an emergency fund, seeking a low-interest personal loan, or considering other sources of funds that may not impact your retirement savings. 

Consulting with a Financial Professional

Considering the potential complexities and long-term consequences of a 401(k) loan, it’s advisable to consult with a financial professional. They can provide personalized advice based on your financial situation, goals, and the specific details of your 401(k) plan. 

Taking a loan from your 401(k) should be carefully considered and approached with caution. While it may provide a short-term solution to your financial needs, it can have long-term implications on your retirement savings. Understanding the eligibility requirements, repayment terms, tax implications, risks, and alternatives will empower you to make an informed decision that aligns with your overall financial well-being. 

 

Retirement planning has been evolving over the years. In the past, retirement planning was primarily about saving money in a 401(k) or IRA. However, with the emergence of technology and the changing demographics of the workforce, retirement planning is taking on a new form. In this article, we will explore the trends and innovations that are shaping the future of retirement planning.

Importance of Retirement Planning

Regardless of whether you’re a small business owner, a freelancer, or an employee, planning for retirement is crucial. It ensures that you have enough money to cover your living expenses and healthcare costs in the future. Retirement planning allows you to live the lifestyle you desire and pursue your passions without worrying about financial constraints.

Answer a few simple questions to find the optimal plan for you and your small business.

How many employees do you have?
I am a sole proprietor
(just me/or my business partner/spouse)

Or schedule a free consultation with a retirement specialist.

The Future of Retirement Planning

As we look ahead, we can expect to see more innovation and personalization in retirement planning. Here are some trends that are shaping the future:

  1. Personalized Retirement Plans: Traditional retirement plans often take a one-size-fits-all approach. However, the future of retirement planning lies in personalized plans. These plans will consider individual circumstances such as age, health status, and financial goals to help individuals save and invest according to their unique needs. For small business owners, choosing the right 401(k) plan for your employees can also provide a level of personalization and support.
  2. Increased Use of Technology: Technology will play a significant role in making retirement planning more accessible, efficient, and cost-effective. With the advancements in financial technology, individuals will have access to tools and platforms that enable them to monitor their retirement savings, track their expenses, and make informed investment decisions. For small business owners, working with a low-cost, flat-fee1 provider that utilizes proprietary technology can ensure that your small business 401(k) plan is optimized for success.
  3. Robo-Advisors: Robo-advisors are automated investment platforms that use algorithms to provide personalized investment advice and manage portfolios. These platforms will become more prevalent in retirement planning, offering individuals a convenient and cost-effective way to manage their investments. Robo-advisors can help individuals make informed investment decisions based on their risk tolerance, goals, and time horizon.
  4. Impact Investing: As people become more conscious of the impact their investments have on society and the environment, impact investing will gain popularity. Impact investing allows individuals to align their investments with their values by investing in companies and organizations that make a positive impact on society. This trend will give retirement savers an opportunity to make a difference while growing their wealth.
  5. Longevity Planning: With increasing life expectancies, longevity planning will become more important. Longevity planning involves creating a financial plan that accounts for the possibility of living a longer life. Individuals will need to consider factors such as healthcare costs, long-term care, and estate planning. Small business owners should also factor in longevity planning when designing retirement benefits for their employees, as women tend to live longer than men on average.

The future of retirement planning is marked by innovation and personalization. Technology will play a crucial role in making retirement planning more accessible and efficient.

Personalized plans, robo-advisors, impact investing, and longevity planning are some of the trends to watch. As a small business owner, staying informed about these trends will help you design effective retirement plans for yourself and your employees, ensuring a secure and prosperous future.

 

1 Decimal, Inc. charges flat fees for recordkeeping and administrative services. Third-party service providers may assess asset-based fees to customers. We advise Plan Sponsors to review all service agreements with providers, such as investment advisors, custodians, and broker-dealers, to evaluate the total cost of the plan. 

Ubiquity is not a registered investment advisor, and the information provided herein should not be considered legal or tax advice. We recommend consulting with your financial planner, attorney, and/or tax advisor for personalized advice. 

When it comes to planning for retirement, one of the most powerful tools at your disposal is compound interest. Understanding how compound interest works within your 401(k) plan can provide valuable insights into the growth potential of your retirement savings. In this article, we will explore the concept of compound interest and its impact on your 401(k) investments.

What is Compound Interest?

Compound interest is the process of earning interest on both the initial principal amount and any accumulated interest. In simpler terms, it’s interest on top of interest. Over time, this compounding effect can significantly enhance the growth of your investments.

How Compound Interest Works in a 401(k) Plan

In a 401(k) plan, your contributions are invested in various assets, such as stocks, bonds, or mutual funds. These investments have the potential to generate returns in the form of capital gains, dividends, or interest. As these returns are reinvested back into your account, they start to earn additional returns.

Answer a few simple questions to find the optimal plan for you and your small business.

How many employees do you have?
I am a sole proprietor
(just me/or my business partner/spouse)

Or schedule a free consultation with a retirement specialist.

The Power of Time

The key factor that amplifies the impact of compound interest is time. The longer your money remains invested, the more time it has to compound and grow. Even small contributions made early on in your career can have a significant impact on your retirement savings due to the compounding effect over several decades.

Contributions and Earnings

In a 401(k) plan, you make regular contributions from your paycheck, typically on a pre-tax basis. These contributions are invested and start earning returns. Over time, the accumulated earnings contribute to the overall growth of your account.

Let’s consider an example to illustrate the power of compound interest. Suppose you start contributing $200 per month to your 401(k) plan, and your investments generate an average annual return of 7%.

After 30 years, your initial contributions would total $72,000. However, thanks to the compounding effect, your account balance could grow to approximately $302,000, assuming all returns are reinvested. The additional $230,000 comes from the compounded earnings generated over the years.

The Role of Consistency

Consistency is a vital component in harnessing the full potential of compound interest. Regular and disciplined contributions to your 401(k) plan ensure a steady flow of funds into your account, allowing for continuous compounding. Maintaining consistency even during periods of market volatility can help smooth out the impact of short-term fluctuations and provide long-term growth.

Maximizing Compound Interest in Your 401(k) Plan

To maximize the benefits of compound interest in your 401(k) plan, consider the following strategies:

  1. Start Early: The earlier you start contributing to your 401(k), the more time your investments have to compound. Even small contributions in the early years can make a substantial difference in the long run.
  2. Take Advantage of Employer Matching: If your employer offers a matching contribution, make sure you contribute enough to maximize the match. This is essentially free money that accelerates the growth of your retirement savings.
  3. Increase Contributions Over Time: As your income grows or expenses decrease, consider increasing your contributions to your 401(k) plan. This not only boosts your retirement savings but also enhances the compounding effect. Small business owners might consider adding automatic escalation, a retirement plan feature that enables employees’ contributions to automatically increase by a pre-determined amount or percentage at set intervals (such as annually) until the maximum contribution rate is reached.
  4. Diversify Your Investments: A diversified investment portfolio can help mitigate risk and optimize returns. Consider allocating your contributions across a mix of asset classes that align with your risk tolerance and investment goals.
  5. Avoid Early Withdrawals: Withdrawing funds from your 401(k) plan before retirement can significantly diminish the power of compound interest. It’s generally advisable to let your investments grow undisturbed until you reach retirement age.

Compound interest is a powerful force that can work in your favor when saving for retirement through a 401(k) plan. By understanding how it works and implementing strategies to maximize its benefits, you can set yourself on a path towards a more secure and comfortable retirement.

Remember, time, consistency, and a well-thought-out investment approach are key ingredients to unlock the full potential of compound interest in your 401(k) plan.

 

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.

As a small business owner, you might think offering your employees a 401(k) plan is unnecessary. However, by offering a diversified investment option in your small business 401(k) plan, you can provide your employees with valuable benefits that can help you attract and retain top talent while also increasing your own financial security.

What is a Diversified Investment Option in a 401(k) Plan?

A diversified investment option is a type of investment that is designed to spread risk across multiple asset classes. In a 401(k) plan context, this can help your small business’s employees spread their savings across multiple funds, including stocks, bonds, and mutual funds. This approach can help reduce the risk of a single investment losing value, which is important for employees saving for the future.

Why You Should Offer a Diversified Investment Option

1. Increased Employee Engagement and Retention

Employees are more likely to stay with a company that offers a retirement savings plan that meets their financial needs. By offering a diversified investment option, you can show your employees that you care about their financial wellbeing, which can help to build loyalty and trust.

2. Reduced Fiduciary Liability

As a small business owner, you have a fiduciary responsibility to your employees to act in their best interest when it comes to managing their retirement savings. Offering a diversified investment option can help to reduce your fiduciary liability, as it allows employees to manage their own investments and make their own investment decisions.

Answer a few simple questions to find the optimal plan for you and your small business.

How many employees do you have?
I am a sole proprietor
(just me/or my business partner/spouse)

Or schedule a free consultation with a retirement specialist.

3. Improved Retirement Outcomes for Employees

Diversification is a critical concept in investing, and it plays a vital role in 401(k) plans as well. By offering a diverse range of investment options within the plan, you can help employees reduce risk and potentially increase their returns over the long term. This, in turn, can contribute to their ability to save more money for retirement and achieve a more secure financial future. Here’s how diversification can have these positive effects:

  • Risk reduction: Diversification involves spreading investments across different asset classes, such as stocks, bonds, and cash equivalents, as well as different industries, sectors, and geographic regions. The goal is to create a portfolio that is not overly concentrated in any single investment. By diversifying their investments, employees can reduce the impact of a single investment’s poor performance on their overall portfolio. If one investment performs poorly, others may offset those losses, helping to mitigate risk.
  • Increased returns: Diversification also has the potential to increase overall investment returns. Different asset classes tend to perform differently under various market conditions. While one asset class may experience a decline, another may be performing well. By holding a diversified portfolio, employees have the opportunity to capture the positive returns of different investments. Over time, this can potentially lead to a higher average return compared to a concentrated portfolio.
  • Long-term growth: The primary objective of a 401(k) plan is to provide employees with a vehicle to save for retirement. By offering a well-diversified investment lineup, you can help employees achieve long-term growth. Diversification helps to smooth out the volatility that comes with investing, as different investments may experience ups and downs at different times. This stability can instill confidence in employees, encouraging them to stay invested and maintain their contributions over the long haul.
  • Preservation of capital: Diversification can also play a role in capital preservation. By allocating investments across different asset classes, employees can avoid the risk of a significant loss in their retirement savings. If a particular investment suffers a substantial decline, the impact on the overall portfolio can be minimized by the presence of other investments that may be performing well. This can help employees protect their capital and avoid severe setbacks as they progress towards retirement.
  • Enhanced retirement readiness: Ultimately, the aim of a 401(k) plan is to help employees save for retirement and achieve financial security. By offering a well-diversified investment lineup, you empower employees to make choices that align with their risk tolerance and investment goals. Diversification helps create a balanced and resilient portfolio that has the potential to weather different market conditions. As employees accumulate savings through a diversified approach, they can be better prepared for a financially secure retirement.

It’s important to note that while diversification can help reduce risk, it does not eliminate it entirely, nor does it guarantee investment success or protect against losses.

Employees should be encouraged to regularly review and rebalance their portfolios based on their individual circumstances and investment objectives. Providing education and resources on the benefits and principles of diversification can help employees make informed decisions and take advantage of the potential long-term benefits it offers.

4. Increased Tax Savings for Business Owners

Offering a 401(k) plan with a diversified investment option can also provide tax savings and other benefits for small business owners. By offering a match and contributing to the plan on behalf of employees, you can reduce your taxable income, which can help to lower your overall tax bill.

Bonus: Did you know there are tax credits and deductions available to small business owners offering 401(k) plans? Now you do. Here are the details:

  • Eligible employers can receive a tax credit of up to $5,000 over three years for starting a 401(k) plan, subject to IRS requirements.
  • Employers with 50 or fewer employees qualify for a 100% tax credit, while those with 100-50 employees can receive a 50% tax credit.
  • Additional eligibility criteria include having at least one non-highly compensated employee, an employee who received at least $5,000 in compensation in the preceding year and having substantially the same employees receiving contributions or benefits from another plan sponsored by the employer, a member of a controlled group, or a predecessor within the three tax years prior to becoming eligible.
  • Employers with automatic enrollment plans can receive an extra tax credit of $500 per year for a three-year taxable period.

 

Ubiquity is not a registered investment advisor, and the information provided herein should not be considered legal or tax advice. We recommend consulting with your financial planner, attorney, and/or tax advisor for personalized advice.

As a small business owner, you know the importance of attracting and retaining talented employees. One way to do this is by offering a portable 401(k) plan. A portable 401(k) plan is exactly what it sounds like: A retirement savings plan that employees can take with them if they leave the company.

So… what is it, really?

A portable 401(k) plan is a retirement savings plan that allows employees to take their contributions and employer-matching contributions with them if they leave the company. This type of plan is also known as a rollover 401(k) or individual 401(k). With a portable 401(k) plan, employees can continue to make contributions to their retirement savings account regardless of their employment status.

Why should I offer a portable 401(k) plan?

Glad you asked. From top talent to tax benefits, a portable 401(k) plan could be just what your small business needs.

Benefit #1: Improved Employee Retention

Valuable benefit? Check. Valuable benefit that stays beneficial when employees leave? Check and check. This type of plan can be especially attractive to younger employees who may not plan on staying with the same company for their entire careers.

Benefit #2: Increased Employee Satisfaction

Employees appreciate the ability to save for retirement, and a portable plan allows them to continue to do so even if they change jobs. Plus, 401(k) plans have a huge impact on financial wellness, so think of it as a way to show employees you care.

Benefit #3: Competitive Advantage in Hiring

PSA: If you offer a 401(k) plan, you’ll have a competitive advantage when hiring top talent. It’s that easy. And with a portable small business 401(k), your business can be especially attractive to job seekers looking for job that offers comprehensive benefits.

Benefit #4: Tax Benefits for Employers and Employees

Employer contributions to a 401(k) plan are tax-deductible1, and employees can make pre-tax contributions to their retirement savings account. So it’s a win-win for your small business and your employees when tax season rolls around.

Answer a few simple questions to find the optimal plan for you and your small business.

How many employees do you have?
I am a sole proprietor
(just me/or my business partner/spouse)

Or schedule a free consultation with a retirement specialist.

Benefit #5: Increased Employee Savings

A portable 401(k) plan can also help employees save more money for retirement. By offering a retirement savings plan with employer-matching contributions, you can help your employees save more money than they would be able to on their own. (And it’s tax-deductible for you.)

Benefit #6: Cost-Effective for Small Businesses

Offering a portable 401(k) plan can be cost-effective for small businesses. There are many affordable options for small business owners to offer a 401(k) – and some of them are even top-rated2. (Hi, we’re Ubiquity.)

While offering a retirement plan can seem like an added expense, it can actually be a really solid option for small businesses. Many providers offer low-cost plans that are tailored specifically for small businesses. Additionally, offering a retirement plan can help reduce turnover costs by improving employee retention, which can save your small business money in the long run.

Benefit #7: Flexible Contribution Options

Portable 401(k) plans offer flexible contribution options for both you and your employees. You can choose to match employee contributions up to a certain percentage, or you can offer your employees a set contribution amount. Employees can also choose to contribute as much or as little as they would like, up to the IRS contribution limits.

Benefit #8: Ease of Administration

Portable 401(k) plans are easy to administer, especially when compared to other retirement plan options like pensions. Many providers offer online administration tools that make it simple for small business owners like you to manage their employees’ retirement plans.

Benefit #9: Opportunity for Higher Contributions

Like all 401(k) plans, portable plans allow for higher contribution limits than traditional IRA accounts. In 2023, the contribution limit for a 401(k) plan is $22,500 for employees under 50 years old and $30,000 for employees over 50 years old. Compare that to the measly $6,500 you’re allowed to save in an IRA! This higher contribution limit can help employees save more money for retirement.

Ready to get started?

Look for a provider that offers low fees, a wide range of investment options, and easy-to-use administration tools… a provider like Ubiquity.

 

 

1 Employers with 50 or fewer employees can receive a tax credit for contributing to their employees’ retirement plans. The credit is a percentage of the amount contributed by the employer, up to a per-employee cap of $1,000. The credit percentage is reduced over five years, with 100% in the first and second years, 75% in the third year, 50% in the fourth year, and 25% in the fifth year. No credit for subsequent tax years, thereafter. 

2 Decimal, Inc. conducted an evaluation of four small-business 401(k) providers in the marketplace by analyzing independent customer reviews on Google, Trustpilot, and the Better Business Bureau, as reported by unaffiliated contributors on or before September 30, 2022, with a revaluation date of January 12, 2023. The evaluation resulted in a higher score for our company compared to the other providers. We strive to provide excellent service to our customers and appreciate their feedback.   

Ubiquity is not a registered investment advisor, and the information provided herein should not be considered legal or tax advice. We recommend consulting with your financial planner, attorney, and/or tax advisor for personalized advice.

To help your small business employees save for their futures, consider adding automatic enrollment to your 401(k) plan. This is an effective method of encouraging them to save. This is a strategy worth considering for a variety of reasons. Not only does it motivate employees to save for retirement, but it also is advantageous to your small business. Here are six reasons why offering automatic enrollment is advantageous:

1. Compliance with Future Requirements

Automatic enrollment is expected to become a mandatory feature in most plans starting in 2025. Implement automatic enrollment now. This will put you ahead of the curve. Ensure that your small business is prepared to meet future regulatory requirements. It demonstrates your commitment to compliance and positions your business favorably.

2. Tax Savings Opportunities

When you incorporate automatic enrollment into your small business 401(k) plan, you may qualify for tax savings of up to $500 per year for the first three years of offering it. These savings can help offset plan costs and provide financial relief for your business.

Answer a few simple questions to find the optimal plan for you and your small business.

How many employees do you have?
I am a sole proprietor
(just me/or my business partner/spouse)

Or schedule a free consultation with a retirement specialist.

3. Increased Plan Participation

Remove the decision-making burden from your employees. Make it easy for them to save for retirement with automatic enrollment. This will significantly increase plan participation rates. Studies have shown that streamlining your 401(k) plan with features like automatic enrollment can lead to participation rates surpassing 90%. This high level of engagement ensures more of your employees are actively saving for their retirement.

4. Improved Retirement Savings

By automatically enrolling employees in the plan and setting a default contribution rate, you create a pathway for improved retirement savings. This effortless enrollment approach increases the likelihood that employees will save for retirement. In fact, research indicates that employees who are automatically enrolled in a plan tend to contribute at higher rates compared to those who enroll voluntarily.

5. Attracting and Retaining Top Talent

Offering a retirement plan with automatic enrollment sends a strong message to your employees that you genuinely care about their financial future. This becomes a compelling selling point when attracting new talent and retaining your current workforce. Retirement benefits are becoming more important than just salary. Automatic enrollment sets your business apart and makes it easier for employees to save for the future. This will help you attract and retain existing and potential employees.

6. Streamlined Administration

By automatically enrolling employees, you reduce the need for extensive efforts to encourage participation in your small business’s 401(k) plan. Additionally, setting a default contribution rate simplifies plan administration, reducing administrative burden and freeing up time for other essential tasks.

Embrace automatic enrollment to help your employees save for retirement. This will also improve the competitiveness, compliance, and administrative efficiency of your small business. It’s a proactive approach that benefits both your employees and your business’s long-term success.

 

 

Ubiquity is not a registered investment advisor, and the information provided herein should not be considered legal or tax advice. We recommend consulting with your financial planner, attorney, and/or tax advisor for personalized advice. 

Read Ubiquity's Guide to Small Business 401(k) Plans
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Talk to Sales
Schedule a Free Consultation

Contact Support
Visit our Help Center
support@myubiquity.com
Monday–Friday
6am–5pm PT / 9am–8pm ET

© 2024 Ubiquity Retirement + Savings
44 Montgomery Street, Suite 300
San Francisco, CA 94104