Transferring Balances from Other Plans into 401ks

Can I move my funds from other qualified retirement plans into my newly set up 401k? Jeremy Sommers, Idaho, runs a day care.

You can move your funds from other qualified retirement plans like IRAs, 403b or others into your newly set up 401K plan. Once the transfer is complete, the funds in your 401K can be used just as you would your direct contributions to this plan. For instance, you can borrow funds up to $50,000 based on the accumulated balance in the account.

In fact, the 401K is now becoming the preferred retirement benefit plan for many small businesses across theU.S.A.The revisions made to the Economic Growth and Tax Relief Reconciliation Act of 2001 have made this retirement plan far more flexible and beneficial when you compare it with the other options. The high contribution limits combined with the fact that you save pre- tax dollars makes this plan a great tax planning tool for small owner- only businesses as well as those with limited number of employees. You can even choose to set up a 401K plan if you employ your spouse in your business.

Remember that there may be slightly different conditions to be met for owner- only business 401Ks and those that employ other people. Make sure you understand the differences when you are drawing up the plan document.

Businesses that hire employees often use a ready- to- use 401K suite like the one offered at to make the plan administration simple. You too can choose a package like this one to make tracking, updating and managing the various 401K assets of your employees hassle free.

Tips on Choosing a 401K Suite

I want to use a ready made 401K software suite to set up a 401K plan for my small business. How do I find the perfect suite? Jessica Seamus, Atlantic City, runs a florist chain.

A 401K software suite is the best tool to set up and manage your small business 401K plan. There are number of such suites available online and it can be quite a challenging task to pick one. Here are some tips:

  • The cost is one of the primary factors to consider. Compare costs of the different options available alongside the features to find a suite that offers the most value for your money.
  • Investment choice is definitely a must have with a 401K software suite. Different participants may have different investment needs and your 401K should be able to fulfill them all. Choose a suite like that offers a complete range of no load mutual funds.
  • A versatile package is the easiest one for you to work with. Your 401K suite should allow you to make changes and adapt the plan to your business’s growth with ease. You should be able to change preferences, add or remove participants, track loans etc with your package.

Great support is essential if you want your 401K program to run without a hitch at all times. Friendly support is especially important during the initial stages when you are still familiarizing yourself with the workings of the package. Look for a suite that offers step by step set up and operation guidance in addition to skilled support on both plan related as well as software related issues.

Taking Loans from Owner Only Business 401K

I have been thinking of setting up a 401K plan for my mechanic shop in Ohio. This is currently an owner only business but I may employ more people later. Can I take a loan from this plan if I want to expand my business? Carl Travers

Definitely, Carl! You can take a loan from your 401K plan once you set one up for your owner only mechanic shop. If at a later date you have more employees on your rolls, you can make the plan available to them. They too can use this plan as a financial safety net when they are in need of money.

If you want to expand your business, the 401K loan is a much better option than a self employed loan or a small business loan. You can withdraw up to half of your accumulated balance in the form of a loan. The maximum limit for such loans is a whopping $50,000, which is quite a substantial chunk of money for any small business. Best part is your loan is tax free. But make sure you pay back the loan on time to avoid penalties.

Managing your 401K account may be a simple task right now when you are the only participant, but it can get somewhat complex as you hire more employees. You may want to use a DIY 401K set up suite like to ensure that managing the plan is easy and quick even when there are several participants other than you.

Roth 401K for Owner Only Businesses

I run a fast growing owner only business in Salisbury, Maryland. Should I set up a traditional 401K or have a Roth option added to it?- Mathew Haskew- Freelance decorator.

The Roth 401K gives you the ability to arrange for tax free income in your retired years. This option is especially beneficial to people like you who run an owner only business. That is because this 401K option lets you stretch your assets and reduce your tax payable.

Revisions to the original law have made it possible for you to make higher annual contributions to this plan. When you compare it with a Roth IRA, the Roth 401K still wins hands down in this area. You can even move from an existing traditional 401K plan where contributions are made from pre- tax dollars to a Roth where you pay in taxed dollars so that future withdrawals are tax free.

The high contribution limits and the fact that the funds grow tax free combine to make this plan very attractive for business owners like you who are likely to grow in terms of earnings in future years. Look at it this way, right now you may fall within a lower tax bracket and you pay little by way of tax before you make contributions to your Roth 401K. Towards the end of your career, your business may have grown multiple times, moving you up the tax ladder to the highest tax bracket possible. Rather than ending up paying tax at those higher rates at withdrawal time, it is best for you to pay tax right now to ensure tax free retired income.

Choose an easy to use package like to set up and manage your 401K so that you can easily and quickly allocate the plan assets in line with your changing needs as your business grows. This way you can also reallocate assets to tax advantaged investments to give you the best savings as your business grows.

The Roth is Not Right for Everyone

I run a small bakery and employ sales people who get paid through sales commissions at Christmas time. I am not sure a Roth is the most beneficial plan for them.- Lorrie Gillyard from Pembroke Pines, Florida.

You are perfectly right, Lorrie. The Roth is generally not a good option for people who earn high incomes on a temporary basis. The earnings of your sales staff will be higher during the Christmas season but much lower during the other months of the year. If they choose a Roth 401K, they have to pay taxes before the contribution is deducted from the paycheck. That is, they contribute with taxed dollars. If their enhanced earnings puts them in a high tax bracket, the whole purpose of saving with a retirement benefit plan is laid waste.

Remember that you can only offer a Roth plan in addition to your regular 401K. If you do add this option, you can simply advise your sales staff to avoid choosing it. The Roth option can still be open to other employees whose income does not fluctuate seasonally. For a detailed comparative analysis of Roths and traditional 401Ks, you can take a look at You will also find a comprehensive software package offered onsite that can make your 401k/ Roth 401k plan administration a breeze.

Choosing a DIY 401K suite like this one also lets your employees get a greater degree of control over their retirement planning funds. This boosts their confidence in the plan and encourages them to participate to the best of their financial capacity.