Retirement Plan Deadlines of Note: A Roadmap for Small Business Owners
September occupies a strange place on the calendar. As it's the start of a new school year, it often is a time of new beginnings, new schedules, new teams, new obligations. But, it's also 70% through the calendar year - we're already looking towards wrapping up 2023, and looking and planning into 2024.
As the year draws to a close, small business owners and plan sponsors should mark their calendars for crucial deadlines related to retirement plans. These deadlines encompass various aspects of retirement plan management, from establishing new Safe Harbor plans to transitioning SEP or SIMPLE plans. Here's a brief overview:
Individual or Solo 401(k):
Upcoming Important deadlines:
Establishment: Ongoing
Termination: Ongoing
If you're a self-employed individual or a small business owner with no full-time employees except, perhaps, your spouse, the Individual 401(k) could be a solid choice. It offers the unique advantage of allowing you to play both roles - as the employer and the employee.
In the capacity of an employee, you can make contributions either on a pre-tax basis or opt for Roth contributions if you prefer to pay taxes upfront. The total amount you can contribute, combining both employer and employee contributions, is $66,000 in 2023 (depending on your income). Additionally, you have a lot of flexibility when it comes to investment choices. However, keep in mind that managing both sides of the contributions entails some moderate administrative responsibilities.
SEP IRA (Simplified Employee Pension IRA):
Upcoming Important deadlines:
Establishment: April 15th of NEXT year, or when your business taxes are filled including extensions
Termination: No deadline
A SEP IRA is known for its simplicity and is a straightforward choice. Here, only the employer makes contributions, and it's usually a percentage of each employee's salary. The same percentage applies to all eligible employees, ensuring uniformity.
Setting up and running a SEP IRA is uncomplicated, and the employer's contributions are tax-deductible. The streamlined approach makes it appealing, especially for businesses with limited administrative resources.
SIMPLE IRA (Savings Incentive Match Plan for Employees IRA):
Upcoming Important deadlines:
Establishment: October 1st for Plans for Current Year
Termination: by November 2nd to terminate in time for January (includes if you are transitioning to a Traditional 401(k) Plan)
For small businesses with up to 100 employees, this type of retirement plan permits both employer and employee contributions.
As the employer, you have the flexibility to either match your employees' contributions (up to a certain limit) or provide a fixed 2% contribution to all eligible employees, regardless of whether they make contributions themselves. This incentivizes employee participation.
Setting up and managing a SIMPLE IRA is relatively straightforward, though it does involve a bit more administrative work compared to a SEP IRA. It's a smart choice for small businesses looking to promote retirement savings among their staff.
Safe Harbor 401(k):
Upcoming Important deadlines:
Establishment: October 1st for Plans for Current Year
Termination: Ongoing
The Safe Harbor 401(k), is a particular type of 401(k) plan designed to benefit both employees and business owners. It's particularly attractive for businesses that want to avoid annual nondiscrimination testing which we've talked here about on this blog.
In a Safe Harbor 401(k), the employer commits to making mandatory contributions, typically through a match or a non-elective contribution. This commitment ensures that highly compensated employees can contribute the maximum allowable amount without concerns about testing failures.
While it involves more employer contributions than a traditional 401(k), the Safe Harbor 401(k) provides peace of mind by guaranteeing that the plan meets IRS requirements. This plan offers a great way to provide valuable retirement benefits to your employees while simplifying plan administration.
Whether you're interested in exploring a Solo 401(k) Plan, considering establishing or a transition from SEP or SIMPLE IRA plans, or establishing a Safe Harbor 401(k) plan, it's vital to stay informed and take action before deadlines limit your opportunities. If you're looking for a Retirement Plan Advisor to help you start or manage your retirement plan, email us today, Christina.Tunison@lpl.com, to ensure compliance and make the most of the available opportunities for your business and employees. Planning ahead now sets the stage for a more secure and prosperous financial future.
This information is not intended as authoritative guidance or tax or legal advice. You should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.
#480713 September 2023