When it comes to building wealth on a tax-deferred basis, the benefits of a 401(k) plan are too good to pass up.
If your Maine-based small business doesn’t have a 401(k) plan, now is a good time to start one. If you already have a plan in place, there are ways to improve it and protect yourself from unpleasant surprises.
Filler & Associates has eight tips for 401(k) success:
1. Don’t invest in only the safest places. Some CEOs think the best way to comply with federal rules is to place all the 401(k) money in guaranteed vehicles, such as certificates of deposit or Treasury Bills. But inflation erodes the value of these fixed-income vehicles. And by only holding the safest investments, you may violate Department of Labor suitability and diversification rules.
2. Make sure you formally document the plan’s goals. Have an “Investment Policy Statement” that describes performance standards and realistic goals for the money manager. It’s important to show that you are being prudent with your investments.
3. Make sure paperwork is filed on time. This can seem overwhelming, but with professional help it doesn’t have to be cumbersome. Talk with Filler & Associates for help navigating the paperwork guidelines.
4. Educate staff to magnify your benefits. Federal 401(k) rules reward business owners for encouraging lower-paid employees to participate. Make sure your employees are aware of the 401(k) tax breaks and the ability to borrow against assets to pay for things like college tuition or the down payment on a house. A low percentage of participation may indicate you aren’t providing enough educational materials.
5. Consider automatic enrollment to boost participation. Some company 401(k) plans now have a feature that automatically enrolls employees when they become eligible without requiring them to submit a request to join. Under this option, a pre-determined percentage of employees’ pay (generally 3 percent) is deferred as soon as they become eligible for the plan. If they don’t want to participate, they must request to be excluded by filing a form, calling a phone number or going to an online address.
6. Remember, you can be personally liable for violations. CEOs and other executives who are made trustees can be held personally responsible if tax laws aren’t followed.
7. Build your own savings by contributing to employees’ accounts. By having your own Maine-based company match a certain amount for every dollar that employees put into their 401(k) plans, you can increase your own tax-deferred growth. And matching contributions can help recruit, retain and reward good employees.
8. Hire a knowledgeable adviser. To avoid compliance problems with federal regulations, make sure your plan is reviewed by a professional who is knowledgeable about all rules and requirements about investment plans. Contact Filler & Associates about setting your business’ 401(k) goals today.