The Frugal Fiduciary Small Business 401(k) Blog
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To plan for retirement, 401(k) participants should set a savings goal and develop a strategy for reaching that goal. To reach their goal at the lowest out-of-pocket cost, I recommend participants follow a simple 4-step strategy – start early, contribute regularly, invest appropriately, and lower fees. However, to reach their goal as soon as possible, participants will need some help from their 401(k) plan. Here are the three 401(k) plan features that can help any saver – including you – retire years sooner.
The priciest thing that most people will buy in their lifetime is retirement. Perhaps you’ve never thought of “buying” retirement, but that’s exactly what you do when you contribute to a 401(k) plan – you’re saving now to afford income in retirement. When you consider that income may need to last 10, 20, even 30 years, it’s easy to understand why retirement is not cheap.
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On December 20, 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law. The legislation made many significant retirement plan changes, including later deadlines for adopting a new 401(k) plan or amending a traditional 401(k) into a safe harbor plan. For most small businesses, these changes took effect January 1, 2020.
When a 401(k) provider’s administration fees are paid from plan assets, they're typically allocated among plan participants pro rata based on account balance. That means the plan participants with largest account balances pay the highest fees. In most small business 401(k) plans, that group usually includes the business owner.
The most expensive thing you’ll probably buy during your lifetime is retirement. Perhaps you’ve never thought of “buying” retirement, but that’s exactly what you do when you participate in a 401(k) plan – you’re saving now to buy retirement income later. When you consider that income may need to last 10, 20, even 30 years, it’s easy to understand why retirement is not cheap. However, by following a simple 3-step plan during your working years - save early and often, invest appropriately, minimize account fees - you can reduce the out-of-pocket cost of your retirement by a lot.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020 in response to the COVID-19 crisis. The Act allows – but does not require - employers to loosen the participant distribution and loan provisions of their 401(k) plan and any Coronavirus-affected individual to reduce the tax burden of most 401(k) distributions. 401(k) participants should understand their options under the CARES Act as soon as possible – this economic relief is temporary.