Why Establish 401k Plans

July 25, 2011 Leave a comment

I am setting up my own small home furnishing business for which I aim to hire about 10 employees. My business consultant tells me that establishing a 401k plan for my employees is a good idea. Why should I set up a 401k plan and how do I benefit from it-? Arnold P. Vaughn,
Sacramento, CA 95814

Arnold, your business consultant is perfectly right. Setting up a 401k plan for your home furnishing business is definitely a great idea especially in this post recession economic climate where people are quite keen on saving for the future. A 401k plan for your employees gives them the opportunity to save in a very effective way for their retirement years. Plus, there are some distinct advantages of saving with these plans. Two of the key aspects that make 401ks so attractive to employees are: tax benefits and employer contributions.

The contributions to the employee’s 401k are taken from his pre- tax dollars. This means that he ends up with lesser taxable earnings every year. The funds he has saved through his 401k plan are taxed only when he withdraws them, at which point he may fall in a lower tax bracket.

The fact that many employers make matching contributions to the employee’s 401k plan make these plans very attractive indeed. For the employee, the employer’s contribution is free money that lets him attain his retirement savings goal much faster.

For you, the employer, setting up a 401k plan is a great way to attract the most talented professionals in the market to your company, ensure their loyalty to the company and keep them motivated to put in their best for you. In addition, you get some tax benefits for the 401k contributions you make on behalf of employees. Given that setting up a 401k plan has become a simple and speedy process, thanks to DIY suites like http://401keasy.com, there is no reason for you to not have one for your small business employees.

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401k Plans for a One Person Company

July 22, 2011 Leave a comment

I run a graphics design business where I am the only employee as of now. Can I set up a 401k plan for my business that I can contribute to? Will I get the tax advantages that regular employees do with their employer sponsored 401k plans? Chan Chung, Bronx, NY 10467

Yes, you can set up a 401k plan for your one person business just like any other business owner can for the benefit of his employees. There is a specific version of the 401k plan that is designed to help small business owners like you save for their retired life. Until the year 2002, it was not possible for a one person business to have a 401k plan for its own but this is not so anymore.

You will find this plan under different names, for example, the http://smallbusiness401k.com calls it the Small Business 401k for One. Under this plan, you can open a 401k account for your owner only business. Businesses that only have employees who do not qualify for the plan or businesses in which the only employee other than the owner is his/ her spouse can also choose this plan.

These plans offer all the benefits that you would stand to get from a regular employer sponsored plan including the possibility of loans from the account. You can choose from a wide range of investment products for this account so that you can diversify your plan assets adequately. In addition, if at some time in the future you decide to expand, you can easily convert the plan into a multi participant plan as well. The contributions you make into your one person plan are made from pre- tax dollars so you get significant tax advantages from setting up this plan.

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401k Plan Fees

July 20, 2011 Leave a comment

I recently read about the U.S Department of Labor’s audit of 401k plans. Why are such audits conducted and do they make any difference to my small business’s 401k plan-? Susan J. Lin, Windom, MN 56101, runs a dress designing outfit from home.

The U.S Labor department audits 401k plans to make sure that they are being operated in such a way that the participants are really benefitted. These audits do help 401k participants or employers like you who offer these plans in their small business for their employees. That’s because audits make sure the 401k plans offered by various providers are in line with certain standards that are designed with the participant’s needs in mind.

One very significant way in which an audit can help you is that it eliminates the incorporation of hidden fees into the plans. Many providers include such costs in the plan but do not disclose these in clear terms when the plan is established. As a result the participants may end up paying several hundreds of dollars through the plan’s life without even knowing it. The participant’s saving potential is reduced to this extent. An audit of the 401k plan reveals these costs and helps make employees and employers like you aware of the potential hidden fees that you may be paying for the plan.

If you would like to have more control over your 401k plan and keep the costs to the minimum possible you could opt for a 401K DIY suite like the one offered by http://smallbusiness401k.com/. Such suites let you establish the plan by yourself, manage it with ease and carry out monthly updations without depending on external help. Getting familiar with such plans is not a challenging task at all because these are designed to be user friendly. Once you have familiarized yourself with the way the software works, it should take you just a few minutes each month to have your records up to date.

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Borrowing Against Your 401k Plan

July 15, 2011 Leave a comment

I own and operate a small business that sells solar powered systems for residential applications. I have heard that the IRS allows you to borrow against your 401k plan, but not sure how it works. Can you throw some light on this matter? Darryl Allinder, Albuquerque

Yes, one of the advantages of a 401k plan is that the IRS permits you to borrow against it, but keep in mind that the loan option is not offered with all plans. Also, the maximum amount that you can borrow with your 401k plan is 50% of the 401K account balance or the lesser of $50,000. This is required to be paid over a term of five years. The rate of interest is determined by your 401k plan and is typically just a couple of points over the prime rate.

Borrowing against your 401k is a relatively easy process. Verify if the rules of your 401k plan permit loans or get in touch with the administrator of your plan for more details regarding the same. Your plan may disallow you from borrowing or limit the loan use for certain purposes like medical expenses only. If you have a 401k management package from http://smallbusiness401k.com/, you can exclude or include 410k loans, based on your requirements and preference.

To initiate the 401k loan process you will have to fill in a request form, and provide information such as you name, account specifics, Social Security Number, and other details pertaining to the loan. There is no credit check for a 401k loan approval. Also, there aren’t any tax implications when you borrow against your 401k. Once the loan is sanctioned, you have to repay it along with the interest over the 5-year term with loan payments on at least a quarterly basis. This money will be deposited back into your 401K account.

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Expenses Associated with Setting Up a 401k

July 13, 2011 Leave a comment

As the owner of a women’s boutique, I feel its high time that I set up a 401k for my  employees. But before I proceed, I would like to know what are the expenses involved in administrating a 401k? Marcie Maughan, Tennessee

What you are doing is absolutely right- it is smart to understand the kind of expenses that go into setting up a 401k for small business owners. You must ensure that the fees you pay to your 401k service provider are reasonable in lieu of the quality and level of the services provided. As a thumb rule, 401k expenses can be widely categorized into administration fees, investment fees and individual fees linked to an optional feature of your 401k plan.

The administration fee is charged for all the daily administrative work associated with managing your 401k, such as accounting, record keeping, trustee services, legalities, and other aspects that go into administering your plan. Additional services such as investment advice, online transactions, or any sort of electronic access may also add to your overall fees. In some cases, these fees will be deducted from the return on investment, and in others they will be charged separately. For a one-time set up fee with no hidden charges, you can consider an online 401k set-up like http://small401k.com for your small business.

Investment management is one area that accounts for most of the expenses related to your 401k. A certain percentage of the invested assets may be charged for services that are investment-related. This is directly debited from the return on investment, and your net return is what you get after a deduction of the investment fees. Understand the expenses related to your 401k investment management to make an informed decision. Individual fees are charged for the optional features you choose when designing your 401k plan; this includes taking out a loan against your 401k or a participant investment choice. 

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401k Fees and Charges to Beware of

July 6, 2011 Leave a comment

My interior decoration business has 5 employees, some of them working from home. I want a 401k software package that can help me set up a 401k plan for my business from which I can take a loan when I want to expand. Do all 401k plans charge the same fees for loans? If not, what should I consider reasonable? Alison Lumpkin, Witts Springs, AR 

Unfortunately, a number of small business owners fail to ask this very important question before they sign up for a 401k plan. Before you start shopping for your plan, you should know that there are some plans that come with fees and charges that are not really reasonable at all when you want to take a loan.

A good thumb rule is to avoid a plan that charges a percentage of your loan on an annual basis. When you decide to dip into your 401k account, chances are you already have a large enough financial need. If it is business expansion for which you will need your 401k funds, chances are the bill is likely to be quite high. You definitely do not want to be paying huge fees under either of these circumstances. A 401k plan like http://smallbusiness401k.com/ that has the same fixed dollar charge for a loan of any size is a better choice. Simply make an estimate of how much you will need as your loan and compare the percentage charges with the fixed charges. You will see which one makes more sense straight away.

Lock-ups are another aspect you should beware of when you are opening your 401k account. Some plans, especially those offered by insurance companies, often have lock-up periods preventing you from taking your funds out until a specific time has passed. Until then, you are stuck with a plan that does not let you take affordable loans. If you do take the loan in spite of the high charges you are committing yourself to paying the annual fee until the lock-up period expires.

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Features to Look for in 401k Suite

July 4, 2011 Leave a comment

I am opening up my own pet boutique based out of my garage. I will be employing a couple of other people to help me out and I want to set up a 401k plan for my business. I am looking for a DIY 401k suite that will take care of the entire set up and administration yet be simple enough for me to use without hiring technical help as well. Gregory D. Cooper, KY 42056

Gregory, a DIY 401k suite will definitely make setting up your 401k plan easy. Most of these plans are also designed to make monthly updation of your accounts simple and fast so that you only need to spend a few minutes each time. For a small business like yours this is really the best deal.

As for being able to use it without extra technical help, you should make sure that the following aspects are covered when you shop for your 401k suite:

  • Your suite should be able to run on any platform- PC, Mac, Unix or others. In case you want to change to another system in future, this feature will ensure that you can simply move your software to the new system without hassle.
  • Make sure that your existing internet connection will suffice for the 401k plan. If possible try out a demo version using your internet connection to ensure that you can use it without trouble. If you are planning on upgrading your connection in future, then the best 401k package for you is one that can work with all types of connections includingDSL, ISDN or even dial up. While you are at this, also check if the 401k works with all of the popular browsers like Internet Explorer, Google Chrome, Firefox etc.
  • Avoid 401k packages that are top heavy with ActiveX or Java applets that can slow down the overall performance especially if you use slow speed connections. What you need is a reliable and efficient 401k management package like http://smallbusiness401k.com/ that comes without extra frills that hamper its usability.

You can browse online to see what other users are saying about the various packages that are available online. Make sure to try demos of a few before you decide on one.

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Choosing a One Man 401k Plan

June 30, 2011 Leave a comment

I run a plumbing business where I am the owner- employee. I don’t employ any others as of now for my business. Can I set up a 401k plan for myself online? What should I look for in such a plan? Sidney B. Daniels, New York

Until as recently as the year 2002, it would not have been possible for you have a 401k account for your business unless you had more employees. But now you can definitely set up a one man 401k plan for yourself without needing multiple plan participants. This plan is the perfect one for small business owners who do not employ others. You can even have this plan if you employ just your spouse in your business.

The easiest way to set up a one man 401k plan is to go with a ready to use suite like http://small401k.com. There are a few points to consider before you decide on the 401k suite you want to sign up for. The most important point is that the suite should have a good choice of investments on offer. This will ensure that you can invest your 401 funds in avenues that give you the best returns with least risk.

The cost of the plan is another point to think about. Comparing DIY suites on different sites will tell you if the one you are looking to sign up for is really competitively priced. The suite should be easy to manage and administer so that you do not end up spending hours of your time every month keeping the account up to date. A good way to test out a 401k suite is to try a free demo. This hands on experience with the package is the best way for you evaluate if it is indeed the right one for you.

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Offline 401k Suites vs. Online

June 28, 2011 Leave a comment

I run a graphics design firm from my home that caters to a few businesses in the neighborhood. Some of my employees work from home while a couple are based in my home office. I need a 401k plan that can be accessed by all of my employees irrespective of where they work from. Christina P. Smartt, Philadelphia, PA 19103

Christina, the best option for you is to look for an online 401k suite like the one offered at http://small401k.com/. These are software packages that can be operated by you or your employee from any place. Here is how it works.

In general, online 401k suites are the ones that are easiest to manage because you do not need to be at your desk to update records or view your account status. The software of your online 401k version is usually housed on a secure server. When you want to pull up your 401k account all you have to do is get to a computer with an internet connection, log in and start accessing the account.

A good 401k suite will let you customize the plan to match your unique needs. With a online 401k suite like this one, your work from home employees can access their account right from their homes while you and the employees working out of your home office can do so right here. Make sure to check all the features of the plan before you sign up for an online 401k DIY package. The 401k suite should give your employees the flexibility to change their investment choices, modify personal details and opt for different plan options. Of course, any new employees should also be able to view all the details about the plan and join online too.

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Taking Loans from a Solo 401k

June 24, 2011 Leave a comment

I run my own florist’s shop where the only employee is my wife. Can I set up a Solo 401k plan for my business that I can take a loan from in future? I do hire some help occasionally but have no other full time employees as of now.- Herman F. Stout, Pullman, WA 99163 

Businesses like yours that do not employ full time employees can set up a Solo 401k or Self Employed 401k, as it is also called. The fact that your wife is a full time employee does not prevent you from opening this retirement benefit plan. To all intents and purposes, the IRS considers your wife as a partner in your business rather than an actual employee.

You can take a loan from this account at a future date if you have a financial emergency. There are some stipulations and restrictions regarding taking loans in this way. A most important one is that you have to limit your loan to half of your account balance in the 401k account. Plus, the total loan should not exceed $50,000. When you repay the loan, the money goes back into the account and so does any interest you pay on the loan. In effect, through the Solo 401k loan you give yourself a loan and pay yourself back too.

Making sure that you do repay on time is very critical because you would end up paying penalties otherwise. If you fail to follow the loan repayment terms you may even end up paying tax on the amount you have withdrawn. A good way to keep track of your loan is to use a DIY 401k suite like http://runityourself401k.com/. With this software package it is an easy task to view your account status, get monthly statements as well as manage the account by just investing a few minutes of your time every month.

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