Guide to Traditional 401(k)s, Roth 401(k)s, and Safe Harbor 401(k)s

Guide to Traditional 401(k)s, Roth 401(k)s, and Safe Harbor 401(k)s

Understanding the benefits and drawbacks of Traditional 401(k), Roth 401(k), and Safe Harbor 401(k) plans can be confusing. In this article, we will help you determine which type is best suited for your business needs and goals.

Below, we have itemized the benefits and drawbacks for employers and employees of Traditional 401(k)s, Roth 401(k)s, and Safe Harbor 401(k)s.

Our team at Saveday can help you navigate the complexity of both types of plans, especially when it comes to compliance and managing complexity. We have also marked the areas where we offer value-add with the following icon on the key points Open Modal

Traditional 401(k) Plan

A Traditional 401(k) is an employer-sponsored retirement savings plan allowing employees to contribute a portion of their pre-tax salary into a qualified retirement account. This account meets IRS requirements for tax benefits, letting contributions grow tax-deferred until withdrawal. Employers often match employee contributions.

Contributions are invested in various options (e.g., stocks, bonds, mutual funds, and ETFs) designed to grow savings over time. Taxes on contributions and investment gains are deferred until the money is withdrawn.

Benefits to a Business

Here are the benefits to businesses for Traditional 401(k)s:

  1. Tax Advantages: Employer contributions are tax-deductible, reducing the company’s overall taxable income and leading to significant tax savings.
  2. Employee Satisfaction: Supporting employees’ retirement savings can help them feel more secure about their financial future, enhancing job satisfaction and productivity.
  3. Flexibility: A Traditional 401(k) plan can be designed to fit a business’s specific needs, including vesting schedules, contribution levels, and investment options.

Benefits to Employees

Here are the benefits to employees for Traditional 401(k)s:

  1. Tax Deferral: Contributions are made with pre-tax dollars, reducing the employee’s annual taxable income.
  2. Employer Matching: Many businesses offer matching contributions, meaning they will match the employee’s contributions to a certain percentage of their salary. (Subject to IRS limits).
  3. Investment Growth: Funds grow tax-deferred, meaning employees do not pay taxes on investment gains until they withdraw the money.
  4. Annual nondiscrimination testing: Ensures the plan benefits all employees equitably and complies with IRS rules.

Drawbacks for Businesses

Here are the drawbacks for businesses of Traditional 401(k)s. Our team at Saveday can help you navigate these issues, especially when it comes to compliance and complexity:

  1. Administrative Costs: These are common to all 401(k) plans but may be higher for Traditional 401(k)s due to specific regulatory requirements. Note that Saveday rates are the same for all plan types. Open Modal
  2. Nondiscrimination Testing: Particularly relevant to Traditional 401(k)s to ensure benefits are fairly distributed among all employees.
  3. Pre-Tax Contributions: This feature can complicate tax planning for the business and necessitates precise payroll handling to ensure compliance with IRS regulations. Note that Saveday integrates with most major payroll services, so this won’t be an issue for our clients.
  4. Mandatory Withdrawals: Required Minimum Distributions (RMDs) from Traditional 401(k)s can create additional administrative tracking and management responsibilities for employers.

Drawbacks for Employees 

Here are the drawbacks for employees for Traditional 401(k)s:

  1. Early Withdrawal Penalties: Withdrawals made before age 59½ are subject to a 10 percent penalty in addition to regular income taxes.
  2. Required Minimum Distributions (RMDs): Employees must start taking distributions at age 72, which are taxed as ordinary income and can impact retirement planning.
  3. Investment Risks: The value of a 401(k) can fluctuate with the market, and market downturns and sub-optimal investment choices can significantly reduce the account balance.
  4. Limited Investment Options: Employees are typically limited to the investment options provided by the plan.

Roth 401(k) Plan

A Roth 401(k) is a retirement savings plan that combines features of a Traditional 401(k) and a Roth IRA. Contributions are made with after-tax dollars, meaning taxes are paid upfront on contributions, but qualified withdrawals in retirement are tax-free. 

Many businesses allow employees to contribute to both a Roth 401(k) and a Traditional 401(k) (subject to IRS contribution limits).

Benefits to a Business 

Here are the benefits to a business when it comes to Roth 401(k)s:

  1. Attracting Talent: Specifically appeals to prospective employees who prefer the tax-free withdrawal feature of Roth 401(k)s at retirement.
  2. Pre-Tax Contributions: This feature can complicate tax planning for the business and necessitates precise payroll handling to ensure compliance with IRS regulations. Note that Saveday integrates with most major payroll services, so this won’t be an issue for our clients. Open Modal

  3. Enhanced Employee Benefits: Demonstrates a commitment to offering diverse and flexible retirement savings options, which is specific to the inclusion of Roth 401(k)s.
  4. Tax Diversification for Employees: Allows employees to choose between pre-tax and after-tax contributions, offering a unique benefit not available with only Traditional 401(k)s.
  5. No Required Minimum Distributions (RMDs) for Employees: Once rolled over into a Roth IRA, Roth 401(k) accounts do not have RMDs, making this a unique selling point compared to Traditional 401(k)s.

Benefits to Employees 

Here are the benefits to employees when it comes to Roth 401(k)s:

  1. No Income Limits: Unlike a Roth IRA, the primary benefit of Roth 401(k) contributions is that they have no income limits, making it accessible to high-income earners, whereas Traditional 401(k)s are also accessible to all income levels but offer no post-tax contribution benefits.
  2. Tax-Free Withdrawals: Qualified withdrawals in retirement are tax-free, benefiting employees who expect to be in a higher tax bracket when they retire, unlike Traditional 401(k)s which are taxed upon withdrawal.
  3. Higher Contribution Limits: Roth IRA, enabling employees to save more for retirement, similar to Traditional 401(k)s but with the added benefit of tax-free withdrawals in retirement.

Drawbacks for Businesses

Here are the drawbacks for businesses specific to Roth 401(k)s. Our team at Saveday can help you navigate these issues, especially when it comes to compliance and complexity:

  1. Employee Education Burden: Employers may need to invest more in educating employees about the benefits and differences of Roth 401(k)s, increasing the workload and costs for HR departments.
  2. Complex Contribution Tracking: Tracking after-tax contributions separately from pre-tax contributions requires more detailed record-keeping and can increase administrative complexity. This is especially an issue if a company offers both Roth and 401(K) programs. This drawback is eliminated for Saveday clients. Open Modal

Drawbacks for Employees

Here are the drawbacks for employees when it comes to Roth 401(k)s:

  1. After-Tax Contributions: Contributions are made with after-tax dollars, meaning employees do not get an immediate tax break on their contributions.
  2. Required Minimum Distributions: Subject to RMDs starting at age 72 (unlike Roth IRAs). 
  3. Potential for Misunderstanding: Employees might misunderstand the differences between Roth and Traditional 401(k) contributions, which can lead to less favorable retirement planning decisions, such as:
    • Tax Implications: Employees may not realize that Roth 401(k) contributions are made with after-tax dollars, potentially leading them to expect a higher take-home pay than they receive.
    • Contribution Limits: Misunderstanding the contribution limits could result in employees not maximizing their retirement savings potential or inadvertently exceeding contribution limits, leading to penalties.
    • Withdrawal Rules: Employees might not understand that qualified withdrawals from Roth 401(k)s are tax-free, which could lead them to make suboptimal decisions about when and how much to withdraw, impacting their retirement income.
    • Financial Planning: Poor understanding of how Roth 401(k) fits into their overall financial strategy could result in employees not taking full advantage of the tax diversification benefits, potentially leading to higher tax liabilities in retirement.

Safe Harbor 401(k) Plan

A Safe Harbor 401(k) is a type of retirement plan that includes mandatory employer contributions that are immediately vested. It is designed to pass the IRS nondiscrimination tests automatically, which ensures that the plan benefits highly compensated employees (HCEs) and non-highly compensated employees (NHCEs) equitably. 

Employers can implement these plans independently or add Safe Harbor provisions to Traditional or Roth 401(k) plans.

Benefits to a Business

Here are the benefits to a business when it comes to Safe Harbor 401(k)s:

  1. Avoid Nondiscrimination Testing: Automatically satisfy IRS nondiscrimination testing requirements, reducing administrative burdens and ensuring compliance.
  2. Attracting Talent: This can be attractive to potential employees, particularly those who value immediate vesting of employer contributions.
  3. Simplified Administration: Automatic compliance with IRS testing simplifies plan administration, reducing the risk of corrective actions or penalties.
  4. Predictable Costs: Employer contributions are predefined, allowing businesses to plan and budget more effectively for these costs.

Benefits to Employees 

Here are the benefits to employees when it comes to Safe Harbor 401(k)s:

  1. Owner-operator: Allows business owners to make larger contributions than Tradition or Roth 401(k)s without triggering nondiscrimination testing, thereby maximizing their personal contributions.
  2. Immediate Vesting: Employer contributions are immediately vested, meaning employees have full ownership of these funds as soon as they are contributed.
  3. Guaranteed Employer Contributions: Guaranteed employer contributions enhance employees’ retirement savings, providing a more secure financial future.
  4. Simplified Plan Design: Employees benefit from a straightforward plan structure with clear benefits, making it easier to understand and appreciate the plan’s value.

Drawbacks for Businesses

Here are the drawbacks to a business when it comes to Safe Harbor 401(k)s:

  1. Cost: Mandatory contributions can be more costly for employers than discretionary contributions in a Traditional 401(k) plan.
  2. Lack of Flexibility: The predefined contribution structure limits employers’ ability to adjust contributions based on business performance or other factors.
  3. Administrative Burden: Requires more careful administration and adherence to specific rules and deadlines than Traditional or Roth 401(k). Working with a company like Saveday can help remedy this challenge. Open Modal

Drawbacks for Employees

Here are the drawbacks to employees when it comes to Safe Harbor 401(k)s:

  1. Lower Immediate Tax Break: Since Dec. 30, 2022, the SECURE Act 2.0 allows participants in 401(k), 403(b) and governmental 457(b) plans to designate employer matching contributions, including those on qualified student loan repayments, and nonelective contributions as Roth contributions. These contributions, now termed “designated Roth matching contributions” and “designated Roth nonelective contributions,” will be considered taxable income each year. While contributions to Roth 401(k) plans are subject to the employee’s current tax rate, this can be a drawback compared to Traditional 401(k) plans where contributions are made pre-tax.
  2. Required minimum distributions: Subject to RMDs starting at age 72, which can impact retirement planning.

Adding Safe Harbor provisions to a Traditional 401(k) and/or Roth 401(k)

Businesses may choose to integrate Safe Harbor provisions into Traditional and Roth 401(k) plans. This enables employers to simplify compliance with IRS nondiscrimination testing, provide employee benefits through immediate vesting and employer contributions, and offer their workforce greater flexibility and tax advantages.

The steps for adding Safe Harbor provisions to existing 401(k) plans include: 

  1. Plan Amendment:
    • Amend the existing 401(k) documents to include Safe Harbor provisions. Coordinate with a plan administrator like Saveday to ensure the amendments meet legal requirements. Open Modal


  2. Choose Safe Harbor Contribution Method:
    • Matching Contributions: Typically, 100 percent of the first 3 percent of employee contributions and 50 percent of the next 2 percent.
    • Non-Elective Contributions: At least 3 percent of each eligible employee’s compensation, regardless of employee contributions.
  3. Immediate Vesting:
    • Ensure that all Safe Harbor contributions are immediately 100 percent vested.
  4. Employee Notice Requirements:
    • Provide eligible employees with a Safe Harbor notice at least 30 to 90 days before the plan year begins. This should detail the Safe Harbor contributions, allocation, and employees’ rights and obligations under the plan. If an employee becomes eligible for a 401(k) or 401(m) plan after the 90th day before the plan year begins, the employer must provide notice to the employee within 90 days before eligibility and no later than the eligibility date. This rule also applies to the first plan year of a new 401(k) plan. If the plan uses a Safe Harbor match contribution, the notice must be provided 30–90 days before the start of each plan year.  
  5. Implementation of Contributions:
    • Traditional 401(k): For pre-tax contributions, update the plan documents to include the Safe Harbor contribution method and make the required employer contributions.
    • Roth 401(k): Ensure the plan documents specify that the Safe Harbor provisions apply to traditional pre-tax and Roth after-tax accounts. Allow employees to make after-tax contributions to their Roth 401(k) accounts while benefiting from the Safe Harbor employer contributions.
  6. Ongoing Administration:
    • Ensure ongoing compliance with Safe Harbor rules, including making the required contributions, providing annual notices to employees, and maintaining accurate records of contributions and vesting. 
    • Review the plan annually to ensure it continues to meet Safe Harbor requirements.

How to Choose a 401(k) Plan Type

Choosing the best 401(k) plan type for your business depends on various factors, including employee demographics, tax considerations, and administrative preferences. These considerations are discussed below. 

When is a Traditional 401(k) right for the business?

A Traditional 401(k) is ideal for businesses seeking to minimize initial setup and maintenance costs while retaining flexibility in employer contributions. It suits workforces that appreciate the pre-tax savings and potential for future tax-deferred growth. 

However, a business must be prepared to handle the administrative complexities and costs of completing IRS nondiscrimination testing to ensure the plan benefits both highly compensated employees (HCEs) and non-highly compensated employees (NHCEs) equitably. This requirement can make administering a Traditional 401(k) plan challenging for small businesses.

Specifically, HCEs—those earning over $150k or owning 5% or more of the company—should not receive disproportionate benefits compared to other employees. If active participants include a higher percentage of HCEs compared to NHCEs, the plan may fail the test. Generally, the plan should benefit at least 70% of NHCEs to pass the nondiscrimination requirements.

When is a Roth 401(k) right for your business?

A Roth 401(k) is suitable for businesses aiming to attract and retain employees who prioritize tax-free withdrawals in retirement. This option particularly appeals to employees who expect to be in a higher tax bracket upon retirement and value long-term tax planning.

Offering a Roth 401(k) can give a business a competitive edge by providing flexibility and choice in retirement planning. However, for small businesses, setting up and managing this plan can be challenging due to increased administrative complexity and costs. These challenges are particularly pronounced for those not using a fully integrated firm like Saveday.com, which simplifies the process and helps ensure compliance. Open Modal

When is a Traditional 401(k) with Safe Harbor right for your business?

A Traditional 401(k) with Safe Harbor provisions is suitable for businesses that want to simplify compliance with IRS nondiscrimination testing while offering guaranteed employer contributions that are immediately vested. 

This plan is ideal for businesses willing to commit to predictable employer contributions in exchange for simplified plan administration and eliminating nondiscrimination testing complexities. It also enhances employee retention by offering immediate vesting of employer contributions.

When is a Roth 401(k) with Safe Harbor right for your business?

A Roth 401(k) with Safe Harbor provisions is suitable for businesses that want to offer comprehensive retirement benefits that include the tax-free withdrawal benefits of a Roth account and the compliance simplicity of a Safe Harbor plan. 

This option attracts employees who appreciate the tax advantages of a Roth 401(k) and the security of immediate vesting from Safe Harbor contributions. It is, therefore, an attractive option for a diverse workforce with varying retirement planning needs. 

However, it requires careful management due to the increased administrative complexity and higher costs associated with combining Roth and Safe Harbor features. A company like Saveday.com can help a company navigate this issue and avoid any pitfalls. Open Modal

Setting up a 401(k) with Saveday

Saveday provides innovative, accessible, and affordable retirement savings solutions for small to medium-sized businesses. 

We offer a variety of retirement plans with auto-enrollment, including Traditional, Roth, and Safe Harbor 401(k), with the option to add Safe Harbor provisions to new or pre-existing plans. Businesses can further customize their plans with profit-sharing, matching, and vesting schedules depending on the chosen plan.

With Saveday, you need never be concerned about setting a plan up incorrectly or that your company’s needs may change. We offer complimentary services that can guide you through nearly any needed alterations.

Saveday highlights its commitment to simplicity, convenience, and transparency. With no hidden fees and competitive plans, we ensure businesses pay only for what they need. 

Our fully automated system makes plan management easy for employers and employees alike, allowing most new clients to complete setup in 15 minutes or less. We also offer dedicated support for plan setup, compliance, and ongoing administration.  
For more information, visit the Saveday website.

401(k) HR Administration Made Easy: Partnering with Saveday for Small Business Owners

Implementing a 401(k) plan as a small business owner can be quite an administrative headache. Many small business owners don’t have the time or HR manpower to take on this project and manage their business simultaneously. You don’t have to face this burden alone. Partnering with Saveday streamlines and simplifies your HR administrative responsibilities. 

1. Simplified Plan Administration:

Saveday’s user-friendly platform simplifies plan administration. From employee onboarding to managing contributions and generating reports, Saveday offers intuitive tools that make the process seamless. With automated data collection and reporting features, you can save time and effort while ensuring accuracy.

2. Personalized Support

Saveday provides dedicated support to guide you through every step of the process. Whether you have questions about plan setup, compliance, or employee communication, Saveday’s experts are there to assist you via phone, email, and live chat services. Enjoy peace of mind knowing that you have a trusted partner to rely on for your 401(k) needs.

3. Expertise and Compliance:

Saveday’s retirement plan experts are well-versed in 401(k) regulations, compliance requirements, and complimentary custodial and fiduciary services. By partnering with saveday, you can ensure that your plan is administered accurately and fully compliant with government regulations. Saveday takes care of the intricate details, allowing you to focus on your core business activities.

4. Cost Savings:

Opting for Saveday can save you money compared to the alternative of hiring additional staff or outsourcing your 401(k) administration. By leveraging Saveday’s simple and streamlined platform, you can reduce overhead costs and allocate resources to other important business areas.

5. Employee Engagement and Education:

Saveday offers robust employee engagement tools and resources to empower your workforce. With features like intuitive investment options, educational materials, and retirement planning tools, Saveday helps employees understand and maximize their 401(k) benefits. Now that they’re engaged, employees are more likely to appreciate and utilize their retirement plans effectively.

In short, managing the HR administrative burden of your 401(k) plan doesn’t have to be overwhelming. By partnering with Saveday, you gain access to expert guidance, streamlined plan administration, cost savings, and enhanced employee engagement. Saveday’s friendly and knowledgeable team will guide you through the complexities, ensuring compliance and efficiency every step of the way. 

Simplify your HR administrative tasks and provide valuable retirement benefits to your employees with Saveday as your trusted 401(k) partner. Better yet, experience peace of mind and focus on what matters most – growing your small business to new heights.

Affordable and Hassle-Free 401(k) Plans for Small Businesses | Saveday

Small businesses save more with SaveDay

As a small business owner, providing a 401(k) plan for your employees is a significant step towards their financial well-being and your company’s growth. However, the cost associated with setting up and managing a 401(k) plan can be a concern. Many companies tack on expensive startup fees, monthly and annual employer costs, per-employee fees, and other buried charges.

But with saveday, you can offer this valuable benefit without any startup cost. Saveday simplifies 401(k) plans for small business owners, eliminating the financial burden and reducing administrative hassle.

5 Ways Saveday Makes 401(k)s Affordable for Small Business

  1. Cost Savings: Saveday’s $0 startup cost removes the financial barrier that deters small businesses from offering retirement benefits. By waiving setup fees, saveday provides a robust savings solution within your budget.
  2. In-House Strategy: Saveday’s fully-bundled strategy eliminates at least 50% of industry average plan costs. With all plan requirements handled in-house, including Registered Investment Advisor, Broker/Dealer, and 401(k) Administrator, we save you money by not charging for revenue sharing with distribution partners.
  3. No Hidden Fees: Unlike competitors, saveday offers transparent pricing and a low AUM fee. We don’t burden you or your employees with monthly, annual, or per-employee fees. More money stays with you and your employees, as it should in retirement planning.
  4. Simple Plan Offerings: Saveday provides simple and flexible plan options tailored to your business’s needs. Whether you’re a sole proprietor or a growing startup, we can customize a 401(k) plan that aligns with your goals. Unlike other providers, we treat all plans equally, ensuring fair access to desirable features.
  5. Seamless Administration: Saveday’s intuitive platform simplifies plan administration. With payroll integration and automated processes for onboarding, contribution management, and reporting, we streamline the administrative tasks associated with a 401(k) plan. Focus on running your business while we handle the rest.

Saveday’s $0 startup cost for a 401(k) plan enables small business owners to offer this vital benefit without financial strain. By providing a 401(k) plan, you support your employees’ financial future and attract top talent to your business. With legislative tailwinds pushing towards mandatory retirement benefits, take the proactive step and offer benefits today to avoid state-mandated deadlines and penalty fees. Trust saveday to make retirement planning accessible, affordable, and hassle-free for your business.

ETFs vs Mutual Funds: Why ETFs Win in Your 401(k)

Exchange Traded Funds or Mutual funds?

Welcome back, fellow 401(k) newbies!

I’m Emma, your young-adult guide to retirement savings. In my last post, we uncovered the secret recipe for growing your 401(k) snowball through the power of compound interest. 

Today, we’re tackling the intimidating by uncovering the world of Exchange Traded Funds (ETFs) and Mutual Funds. Trust me, they sound impossible to understand, but by the end of this post, you’ll see why ETFs are the real investing superheroes. And better yet, why saveday is the well-calculated call for your 401(k).

ETFs and Mutual Funds: Understanding the Basics

Alright, let’s get down to business. ETFs, also known as exchange-traded funds, are like those mixed bags of trail mix your dad grabs for road trips. (Or was that just my dad?) Instead of snacks, they contain a blend of stocks, bonds, and commodities for diversification. But here’s the exciting part: you can buy and sell ETFs throughout the trading day. Flexibility is the key to successful investing, my friends.

Now, let’s turn our attention to Mutual Funds. They’re like the well-meaning, but inflexible siblings of ETFs who always need a pit stop during the road trip. Mutual Funds can only be traded when the markets are closed. While they offer diversification and professional management, they lack the flexibility that makes ETFs so appealing.

Mutual Funds: Limited Options and Pricing Challenges

Ah, Mutual Funds. They mean well, but they come with their limitations. Buying and selling Mutual Funds takes an entire day, leaving you tapping your foot and anxiously waiting for that check. Even worse, Mutual Funds can only be bought or sold at their net asset value (NAV). This value represents the total worth of the fund’s assets minus liabilities, divided by the number of outstanding shares.

In simpler terms, the NAV pricing structure has its disadvantages. You can only trade Mutual Funds at the NAV price when the trading day ends. So, if you want to make a move during the day, you’ll have to wait until the market closes. This lack of flexibility can be frustrating, especially when you want to react quickly to market changes. Your wallet might miss out on potential gains.

Even worse, Mutual Funds often come with higher fees compared to ETFs, gobbling up more of your hard-earned returns. These fees include expense ratios, which cover the fund’s operating costs, and sales loads, which are charges incurred when buying or selling Mutual Funds. It’s like a road-trip buddy that insists on staying at expensive hotels, draining your travel budget! 

ETFs and Your 401(k): Unleashing the Benefits

That’s why saveday has your back with ETFs. Unlike Mutual Funds, which make you wait and potentially miss out on more retirement savings, saveday can make immediate moves based on Nobel Prize-winning strategies (they follow Modern Portfolio Theory). The lower fees associated with ETFs also help keep your costs down, leaving more of your nest egg ready to hatch into the sunny seaside retirement you deserve.

Honestly, the more I learn about saveday, the happier I am that my employer chose them for my 401(k) plan. And if you have any more questions, head over to the saveday blog. They have a treasure trove of resources to help you make informed decisions and supercharge your retirement savings.

Join me next week as we dive into the exciting topic of Employer Matching Contributions and what they mean for the future you and I are building!

Happy Saving!

-Emma

Setting Up a 401(k) as a Small Business: Key Requirements and Restrictions

As a small business owner, you may be considering the benefits of offering a 401(k) plan to your employees. You may live in a state that is mandating businesses to offer retirement plans and are investigating private plan options. Whatever your situation, saveday is here to help navigate the dos and don’ts of sponsoring a retirement plan.

 A 401(k) plan is a popular retirement savings method that provides tax advantages for both employers and employees. However, before diving into the world of retirement plans, it’s important to understand the key requirements and restrictions associated with setting up and managing such a plan.

Who can set up a 401(k) plan?

A 401(k) plan can be established by various types of small businesses, including sole proprietorships, partnerships, limited liability companies (LLCs), corporations, and certain non-profit organizations. The eligibility to set up a 401(k) plan depends on the structure and nature of the business. To learn more you can read the IRS 401(k) page here, but we’ve listed the key considerations below…

Key Considerations:

  1. Eligibility: A 401(k) plan must be offered to all eligible employees, which includes part-time workers, as long as they meet specific criteria such as age and length of service. Ensuring compliance with eligibility requirements is essential to avoid discrimination issues. Saveday can help you navigate the eligibility criteria and ensure that your plan is inclusive and compliant.
  1. Contribution limits: The IRS sets annual limits on the amount employees can contribute to their 401(k) accounts. For 2023, the elective deferral limit is $20,500, with an additional catch-up contribution of $6,500 for individuals aged 50 or older. These limits are subject to adjustment by the IRS in subsequent years. Saveday’s platform enables easy tracking of employee contributions and ensures that they stay within the IRS limits.
  1. Employer Contributions: While not mandatory, employers have the option to make contributions to their employees’ 401(k) accounts. These contributions can take the form of matching contributions or profit-sharing contributions. However, there are rules and limits governing employer contributions, including non-discrimination requirements. Saveday can assist you in designing and implementing an employer contribution strategy that aligns with your business goals and maximizes employee benefits.
  1. Vesting: Vesting refers to the ownership of contributions made by the employer. The IRS has specific rules on vesting schedules, which determine when employees have full ownership of employer contributions. Understanding vesting schedules is crucial for both employers and employees. Saveday can help you establish vesting schedules that are fair and compliant with IRS regulations.
  1. Testing and Reporting: The IRS requires certain tests to ensure that the 401(k) plan does not disproportionately favor highly compensated employees. These tests include the Actual Deferral Percentage (ADP) test, Actual Contribution Percentage (ACP) test, and top-heavy testing. Additionally, annual reporting of the plan’s activity is required through Form 5500, which provides transparency and accountability. Saveday offers complimentary custodial services – which means we do all the reporting and filing for you, at no additional cost.
  1. Fiduciary Responsibilities: As a plan sponsor, you have fiduciary responsibilities to act in the best interests of the plan participants. This includes prudently selecting and monitoring investment options, providing plan information to participants, and ensuring compliance with Employee Retirement Income Security Act (ERISA) regulations. Saveday can act as your ERISA 3(16) and 3(38) fiduciary, relieving you of some of these responsibilities.

Starting a 401(k) at $0 Cost to Your Business

By partnering with saveday, you’ll not only set your small business on the path to a successful 401(k) plan, but you’ll also empower your employees to achieve a secure retirement. With our expertise and personalized guidance, saveday becomes your trusted ally in navigating the complexities of 401(k) plans. We’ll ensure that you meet all key requirements, comply with regulations, and provide your employees with valuable benefits.

Don’t wait any longer to take the first step towards offering a competitive retirement savings option for your employees. Contact saveday today and discover how our services can make a significant difference in your small business. Together, we’ll create a plan that meets your unique needs and helps your employees build a solid financial future. Your commitment to their well-being will set your business apart and contribute to their long-term success. Let saveday be your partner in making it happen.

401(k) Plan vs. State-Sponsored Plans: Maximizing Small Business Success with Saveday

401(k) plans vs. State Plans

401(k) Plans vs. State-Sponsored Plans, which one is best? As more states implement legislation in response to the SECURE 2.0 Act, which mandates small businesses to offer retirement benefits, many owners find themselves searching for private providers or considering state-sponsored plans.

When facing deadlines and penalties, the allure of state plans as simple and affordable options can be tempting.

But don’t be deceived! State plans have limitations, lack customization, hide fees, and may not adequately prepare for retirement. This leaves employees seeking additional investment options.

Now, let’s delve into the distinctions between state-sponsored plans and saveday’s 401(k) plan.

State Plans: Traditional Yet Limited

State-funded plans typically offer only Roth IRAs. With Roth IRAs, or Individual Retirement Accounts, employees contribute post-tax dollars, which means their money is generally tax free at the time of withdrawal. 

There are some downsides to only offering IRAs in your retirement benefits plan. IRAs exclude high-income earners and have a maximum annual contribution limit of $6,500 in 2023, or $7,500 for those over 50. They are generally considered to be insufficient for retirement planning alone, meaning those who contribute to IRAs typically have to find another way to save money for retirement. In addition, many state plans tack on additional fees associated with plan management, which can make them a less attractive option than they appear. 

On the positive side, state plans offer a straightforward solution for businesses seeking a retirement plan without extensive setup requirements. Enrollment in the state-sponsored plan means businesses will be compliant with state mandates, and can avoid costly penalty fees. 

However, businesses often encounter limitations such as restricted investment options and a lack of personalization to align with specific business goals. Additionally, state plans may incur higher administrative costs, impacting your bottom line in the long run. State plans are also ineligible for SECURE Tax Credits, which can compensate for up to $16,500 in plan costs during the first three years of sponsoring a plan. 401(k) plan sponsors are eligible for these credits.

Saveday 401(k): Revolutionizing Retirement for Small Business

Let’s look at the features of a 401(k) that make it a compelling choice for small business owners:

1. Zero Cost for Employers

That’s right! It costs employers nothing to sponsor a retirement plan through saveday. This is retirement planning the way it was supposed to be – with no middle man, no start-up costs or hidden fees, and no hassle. We cut administrative costs so that retirement benefits are accessible to everyone, and so small businesses can put that money back into their operations. 

2. Personalized Guidance

State plans are cookie cutter, with IRAs treating everyone the same. Saveday offers Traditional and Roth plans, with a Risk Assessment that helps employees select the portfolio that’s best for them, and daily auto-rebalancing to protect portfolio health.

3. Empowering Employees

With saveday, employees can contribute up to $22,500 in 2023. Having the ability to contribute more into their retirement accounts puts employees much closer to their retirement goals than with an IRA. But that’s not all. Employees can also enjoy employer matching, profit sharing, and vesting schedules unavailable in state plans.

4. Streamlined Administration

Saveday simplifies the administrative burdens associated with managing a 401(k) plan. Our intuitive platform automates key processes, reduces paperwork, and offers seamless integration with payroll systems. Say goodbye to the headaches of complex plan administration and enjoy a streamlined experience that saves you time and effort. 

Claim Your Victory with Saveday

In the comparison of State Plans versus offering a 401(k) through saveday, the clear victor emerges for small business owners seeking a retirement plan that maximizes benefits and flexibility. While State Plans seem convenient, saveday is the small-business retirement planning solution. 

Empower your small business and provide your employees with a retirement plan that aligns with their aspirations. With saveday, retirement planning becomes an exciting journey that leads to a brighter future for all.

Looking to learn more? Expand your small business savvy by reading more of our blog here!

Form 5500: Different Types and Eligibility Criteria

Form 5500 is a crucial reporting requirement for employee benefit plans, providing valuable insights into their financial health and operations. It’s important to understand the different types of Form 5500 and the specific eligibility criteria set by the IRS. In this post, we will explore the Long-Form, Short-Form (SF) and EZ versions of Form 5500, clarifying who is eligible for each one based on IRS criteria. This knowledge will help ensure compliance and simplify your reporting obligations. Questions about the Form 5500? Check out our Form 5500 FAQs here.

Types of Form 5500 and Eligibility Criteria:

  1. Long-Form (Form 5500):

The Long-Form version of Form 5500 is a comprehensive report designed for larger plans or those with complex features. It asks for detailed information about your plan’s operations, including financial statements and attachments. By providing a complete picture of your employee benefit plan, the Long-Form helps meet regulatory requirements, maintain transparency, and facilitate thorough reporting. It is required for plans with 100 or more participants at the beginning of the plan year. 

  1. Short-Form (SF) or Form 5500-SF:

The Short-Form, also known as Form 5500-SF, is a simplified reporting option for small plans. It reduces the reporting process by eliminating certain schedules and attachments required in the Long-Form. The short-Form focuses on essential plan information, ensuring compliance while easing the reporting burden. It is suitable for plans with fewer than 100 participants at the beginning of the plan year, offering a simpler approach to meet reporting obligations. 

  1. EZ or Form 5500-EZ:

Form 5500-EZ, also called the EZ version, is the simplest reporting option. It is specifically designed for one-participant plans or plans with no participants such as individual 401(k) plans or certain foreign plans. The EZ version requires minimal information, making it a straightforward choice for small plans with simple structures. It offers an easy and streamlined process for eligible plans to meet their reporting obligations. 

Navigating the nuances of Form 5500 and understanding the eligibility criteria for each version is crucial for accurate and compliant reporting. Saveday, as your trusted 401(k) provider, can give expert guidance and support throughout the process. Our experienced team will help determine the appropriate form based on your plan’s characteristics, ensuring compliance and simplifying your reporting obligations. 

Want to learn more about how saveday can simplify Form 5500? Discover your simplified options here!

Understanding Form 5500: Essential Reporting for Your Employee Benefit Plans

Navigating employee benefit plans and ensuring compliance can be overwhelming for small business owners. However, with the right resources and assistance, this process becomes more manageable. In this blog post, we’ll explore the significance of Form 5500, its requirements, and how saveday, as your leading 401(k) provider, can simplify your reporting obligations. Let’s dive in!

Wondering which Form 5500 your business should file? Check out our Form 5500 eligibility post here.

What is Form 5500?

Form 5500 is an annual report required by the IRS, Department of Labor (DOL), and Pension Benefit Guaranty Corporation (PBGC) for employee benefit plans. It provides crucial information about your plan’s activities, financial condition, and overall operations.

Why is Form 5500 important?

Filing Form 5500 goes beyond meeting legal obligations. It ensures transparency, compliance, and protects the interests of both employers and employees. By submitting this form, you demonstrate your commitment to accountability and provide valuable information to government agencies for research and compliance purposes.

What information does Form 5500 require?

Form 5500 requires comprehensive details about your employee benefit plan, including general plan information, service provider details, participant counts, financial data such as assets and liabilities, types of benefits offered, operational activities, and plan funding. It offers a holistic view of your plan’s health and performance.

To learn more about the different types of Form 5500, check out our detailed guide here!

Simplified Compliance Testing

Maintaining the integrity of your 401(k) plan involves conducting compliance testing, which is crucial. At saveday, we understand the complexities involved in this process and offer you support every step of the way. Here’s how saveday can assist your small business:

  1. Fairness and Equal Opportunity:

Saveday ensures that your 401(k) plan operates fairly and provides equal opportunities for all employees to save for retirement. Through comprehensive compliance testing, saveday helps prevent favoritism towards owners or highly compensated employees, fostering a level playing field for all participants.

  1. Expert Guidance:

Saveday’s team of retirement plan experts is well-versed in IRS regulations and compliance testing requirements. They provide personalized guidance, ensuring that your plan meets all necessary guidelines and restrictions.

  1. Plan Optimization:

Saveday helps optimize your plan to ensure compliance while maximizing benefits for your employees. They analyze your plan’s structure, contribution limits, and other factors to create a tailored solution that suits your business needs.

  1. Streamlined Administration:

Saveday’s intuitive platform simplifies plan administration, including Form 5500 reporting. With automated data collection and reporting features, you can streamline the filing process, saving time and effort.

Summary

Filing Form 5500 and conducting compliance testing are crucial responsibilities for small business owners with employee benefit plans. By partnering with saveday, you can simplify these obligations, comply with regulations, and protect the interests of your employees. Transparency, fairness, and adherence to IRS guidelines contribute to the long-term success of your business and the financial well-being of your employees. Stay informed, stay compliant, and continue providing valuable benefits through your employee benefit plans. We’re with you every step of the way!

Power of Investments: Fueling Your Financial Growth

Welcome back to part 3 of my journey as a young adult learning about 401(k)s. Today, we’re diving into the fascinating world of investments and how they can fuel your financial growth. In my previous post, we uncovered the power of compound interest. 

If you missed it, catch up here and join me on this metaphor-laden adventure to unlock the secrets of investments.

Compound interest got me thinking – why do I need to start investing now if I’m not retiring anytime soon? If my contributions compound over time, why couldn’t I just start putting in large amounts of money later on for larger returns? (Aka – couldn’t this be a tomorrow problem? Please?) So, I started to research. 

Turns out, good things really do take time. 

The Orchards of Investment: Cultivating Your Financial Future

Imagine yourself inside a vibrant orchard, teeming with fruit trees that symbolize the boundless potential of investment opportunities. Each tree represents a unique investment avenue within the stock market, signifying the growth of your 401(k) funds. Just like a diligent farmer tends to each tree, carefully selecting the right stocks or funds is vital for nurturing your financial future. Think of it as a quest to uncover the juiciest fruits of investment and cultivate a more prosperous bank account!

Balancing Risks and Rewards: Diversification in Your Investments

Even the most skilled farmers understand the perils of relying solely on one type of tree. Imagine a frost damaging an entire peach crop – it could spell disaster if that’s all they planted. However, by diversifying their orchard with resilient apple trees, they could still harvest enough to sustain their operation for another year.

Diversification is the name of the game! By planting a variety of trees or diversifying your investment portfolio, you can skillfully balance risks and rewards. So, instead of going all-in on mysterious “get-rich-quick” schemes, we spread our investments to create a bountiful financial harvest.

Trusting the Experts: Navigating Investments with Saveday

Just as farmers seek guidance from seasoned botanists, you can rely on investment experts like saveday to navigate the world of investments. Their skilled financial professionals meticulously analyze market trends, identify promising opportunities, and ensure your investment orchard flourishes according to your long-term goals. It’s like having a team of financial geniuses with a green thumb by your side!

Market fluctuations and uncertainties may arise, but with the right strategies and a resilient spirit, you can weather any storm. Trust your investment professionals to guide you through the twists and turns of the market, safeguarding your orchard from unwanted weeds and pests.

Cultivate a Prosperous Future: Investments in Your 401(k)

Embrace this journey and seize the opportunity to nurture your wealth through wise investments in your 401(k). Remember, even the most fruitful gardens encounter challenges. Yet, with a well-crafted investment strategy, you can overcome obstacles and relish the sweet fruits of financial success. Let your 401(k) bloom and flourish like an orchard of limitless possibilities!

Want to learn more about 401(k)s before enrolling? The saveday website has lots of educational resources about 401(k) terms and common questions about 401(k)s available to check out.

See you next week!

-Emma

Unveiling the Power of Compound Interest: How Does a 401(k) Make Money?

Let’s get real for a sec. Ever wondered why you should bother with a 401(k) when there are tempting expenses all around you?

*Cough* another Costco pizza run *cough*. No? Just me?

But hold up, have you ever wondered how a 401(k) actually makes money? Buckle up because in this blog post, we’re diving into the world of compound interest. We’ll unravel the secrets behind growing your 401(k) and show you why investing in your retirement fund can lead to long-term financial bliss. Get ready to be amazed by the wonders of compound interest!

BTW: If you missed last week’s post on How to Claim Your Saveday 401(k), check that out here!

Understanding Compound Interest: The Magic Behind Your Growing 401(k)

Okay, compound interest might sound like a fancy term, but don’t worry! We’ll make it simple. Imagine your 401(k) contributions as a snowball in your hand. Each little snowflake represents a few cents of your paycheck.

Now, imagine rolling that snowball down a snowy hill when you make your first contribution. As it rolls, it starts picking up more snow, growing bigger and bigger. The more it grows, the more snow it collects. Can you see the potential here?

Contributing to your 401(k) works like adding more snow to the snowball. And guess what? Automating your contributions is like giving that snowball a one-way ticket down the hill, gathering even more snow as it goes. The bigger the snowball gets, the faster it accumulates more snow.

In a nutshell, contributing to your 401(k) means trading a small, instant reward (like those mouthwatering $1.50 pizza slices at Costco) for an epic, future payday.

The Magic of Compound Interest and Your Financial Future

Now that you’ve got the snowball metaphor down, let’s talk about the real magic behind compound interest. It’s like a snowball on steroids! When the money in your 401(k) starts earning interest, that interest gets reinvested, generating even more returns for you. It’s like snowball-ception!

Imagine this: Your modest contributions, combined with the power of compound interest, can snowball into a significant sum over time. Starting early and staying consistent with your 401(k) contributions sets the stage for a solid financial future.

Why Should You Jump on the 401(k) Train?

I get it, managing your finances can be overwhelming, especially when you’re young and broke. But listen up! Building wealth and securing your future are the keys to a comfortable retirement. So, next time you’re tempted to splurge, think about that snowball metaphor or log in to your saveday dashboard for inspiration. Every contribution brings you one step closer to your financial goals and can bring the peace of mind you deserve.

Understanding how a 401(k) actually makes money is like cracking a secret code to financial success. Compound interest is the superhero behind your retirement fund’s growth. So, stay tuned for my next blog post where I’ll unveil another mind-blowing method 401(k)s use to make money! In the meantime, if you’re itching to learn more about 401(k)s, head over to the saveday main website. They’ve got a treasure trove of educational resources on 401(k) terms and FAQs. It’s time to take charge of your future and witness the jaw-dropping power of compound interest!

Want to learn more about 401(k)s before enrolling? The saveday website has lots of educational resources about 401(k) terms and common questions about 401(k)s available to check out.

See you next week!

-Emma