In our annual review, we analyzed additional asset classes and how they have historically performed during different economic climates and then closely reviewed investments to select the appropriate funds in line with our low-cost philosophy. We also wanted to ensure we provide at least one fund that has solid historical performance and avoids “sin” industries (e.g. cigarette manufacturers) as many investors are looking for more socially responsible investment options.

The new funds include:

The ShareBuilder 401k line-up is now expanded from 15 Exchange-Traded Funds to 20. It also includes a money market option and the five model portfolios managed by the ShareBuilder Investment Committee.

If you would like to view more details on these or any investment options available from ShareBuilder 401k, please go to the investments tab.

There's no better time than right now to get on the road to saving!

Must Purchase a Plan Now to Have Until Your Tax Deadline to Save on 2011 Taxes

Individual 401(k) plans, which are for the self-employed or any multiple owner business that does not have any employees, must be setup by December 31, 2011 to receive tax benefits. The good news is that you’ll have until your tax filing deadline (April 17, 2012 for most) to make profit sharing contributions into your 401(k) and still receive the tax benefits for 2011.

ShareBuilder 401k has pretty much the latest deadline to buy and setup your plan that qualifies for 2011. You can purchase and complete the online setup by December 31st at 11:59 Eastern and still qualify. There is a nominal expeditor charge for plans purchased from December 23rd through December 31st.

You’ll Have Access to Roth 401(k) and Loan Options Too

Individual 401(k) plans also allow you to make Roth contributions during the calendar year (but Roth contributions are not valid for the previous year if made post December 31st). With a loan through your 401(k) plan, you can always access half of your money up to $50,000 penalty-free in case of an emergency and you pay it back to yourself. For a summary of a Solo 401(k) plan benefits, just give this a read.

Paying yourself first is a great way to receive a gift that can keep on giving for years to come.

Happy Holidays!

And if you receive company matching contributions or profit sharing, the all-in tax-deferral limit has been increased from $49,000 to $50,000 for 2012. Here are the key changes to know:

401(k) Limit Increases for 2012

	2012	2011
Employee contribution limit	$17,000	$16,500
Annual limit per individual	$50,000	$49,000
Age 50+ catch-up amount	$5,500	$5,500
Annual compensation limit	$250,000	$245,000
Highly compensated employees	$115,000	$110,000

Growing Advantage for 401(k)s vs. IRAs

Unfortunately, traditional IRA limits remain unchanged which increases the tax advantages for 401(k) savers versus those opting to use IRAs or don't have access to a 401(k) plan:

*Beginning at $110K, the amount you are allowed to contribute begins to decrease, hitting $0 at $125K.

Most 401(k) plans are built completely, or darn near completely, with actively managed mutual funds. That means fund managers are using research, their experience, etc. to try and beat the market.

Beating the market sounds great and seems like a worthy goal. Unfortunately, so few managers have done so over the long run it’s astounding. Picking stocks is like predicting the weather; very hard to do with any real consistency. Managers have to not only be good, but they also have to find enough winners to overcome the costs of research, personnel, and added trading costs common with actively managed funds to outperform an index.

The Statistics Speak for Themselves

Over a five year period, market indexes outperform 65% to 85% of actively managed funds depending on the asset class. Take a longer view and the numbers get even more lopsided. One independent study evaluated the performance of 2,100 actively managed funds over a 31 year period and found that only 0.6% of fund managers had stock picking success. As one writer stated, 0.6% success is “....a number which is statistically indistinguishable from zero.”

If you have a 401(k) plan loaded with index funds be thankful. If you don’t, ask for them or switch to a provider that has an indexing philosophy. It’s your money. Invest it wisely.

When you take advantage of 401(k) contribution limits and combine it with time, you are putting yourself in much better position to be set for life come retirement age. The secret is setting up a plan sooner rather than later, as it can be much harder to make up for lost time.

To get an idea on how even $1,000 can grow in twenty or thirty years, view our quick one-pager on the Time Value of Savings. Then imagine what it might be like if you were saving $15,000, $25,000, or even the$49,000 maximum each year in your 401(k).

Thank goodness this hasn’t gained traction. The costs and surrender fees are typically sky high and are not a good idea. Just read through the SEC’s site on annuities, and the five or so caution call outs will make clear the other factors to be wary of too.

What is a Variable Annuity?

A variable annuity is a mixed security and insurance product. The value fluctuates depending on the value of the underlying investments which are typically a basket of equities, very similar to mutual funds. During the savings period, investments grow tax-free just like in your 401(k). At retirement, the person can “annuitize” the value and receive a stream of payments for a guaranteed period, such as 20 or 30 years, until death. When funds are withdrawn, the investment gains are taxed as ordinary income. Some people like the ideas of fixed payments guaranteed. Unfortunately, when you know the facts, you will likely have accumulated less because of the costs; and therefore, have less to live on in retirement. Even the added death benefit annuities can offer is rarely justified. Complex and costly are typical attributes of these insurance products.

The Big Three Reasons to Keep Annuities Out of Your 401(k)

1. Most variable annuities are very expensive! Variable annuities typically charge 1.25% to 1.60% mortality and expense fees on top of the fund expense ratios. So instead of paying around 1% for all-in participant fees (what most agree is a good goal), the participant pays at least 2.25% to 2.6% for annuity products, but probably more. Insurance providers’ 401(k) plans tend to be comprised of their own proprietary funds that often carry higher expense ratios versus those from mutual fund and ETF providers. These costs can really add up and result in you and your employees having tens if not hundreds of thousand dollars less come retirement! How anyone would knowingly say these fees are justified in a 401(k) plan is beyond most any prudent person’s judgment.
2. The surrender charges are high and are bad risk for employers to take on. For insurance companies to recover the costs of selling annuities and retain customers, they carry hefty surrender charges that will decline over time. A surrender charge is a fee assessed on assets if you move money out of annuities or switch providers. The surrender charges are often five to seven percent of assets in year one and decline one percent a year until they go away over the next five to seven years. During this period, surrender charges are a big cost to change directions.
   
   As an employer, you are always supposed to act in the best interest of your employees and ensure fees are reasonable. If you decide you want to switch providers due to lower fees, investment performance, or other reasons, you are probably stuck if you have annuities in your plan until the surrender charges are low or expire. This puts you at risk during this period of not being able to act in your employees’ best interest.
3. The death benefits are of little benefit -- rarely used and carry a big price tag too. The insurance provider often touts this attribute as a nice safety net for employees’ families. The way the death benefits works, is an employee must both die and have less money in their account than they have contributed to it. Neither is very likely.
   
   And in case that it does occur, it is expensive. Let’s assume a person has contributed $100,000 to their 401(k) annuity and died before retirement with a balance of $90,000. The heirs would receive the account balance plus $10,000 in insurance. To get this $10,000 in insurance monies, the participant would have paid 1.25% mortality and expense risk fee on the entire $100,000, or $1,250 every year. Over a 5 year period, the death benefit coverage on balances of $100,000 would cost $6,250 to receive $3,750 more. Over a 10 year period, it could exceed the benefit depending on balances.

Annuities can make sense for a part of your portfolio, but not in your 401(k). The costs and issues in managing the plan in your employees’ best interest far outweigh the need for providing annuities in a company’s retirement plan.]]> http://www.sharebuilder401k.com/news/post.aspx?postID=80 Thu, 09 Jun 2011 12:00:00 GMT http://www.sharebuilder401k.com/news/post.aspx?postID=78 If you are a small or midsize business that has a 401(k) plan, you know that you must act in your employees’ best interest. This is part of the duties and fiduciary role you take on. Most owners want to keep the risks of offering a plan low and provide employees the best chance to receive strong performance from their 401(k) roster of funds.

Not only have low-expense funds historically outperformed higher expense funds, but also keeping administration expenses down are part of every employer's duty.

Here are a couple quick tips that can help:

• Ensure you offer plenty of ETFs or index mutual funds in your investment line-up -- they offer low-expenses and typically have good long-term track records
• Keep all-in expenses to employees at 1% or less (often investment management or administrative fees are partially paid for by employees, so funds with less than 0.50% in expenses are a good way to go)
• Have a registered investment advisor (RIA) take on the investment fiduciary liability of managing your 401(k) fund roster – this lowers your risks and workload even more

Need help? We are an RIA and setup to do all of this. We think you’ll find it’s a breeze. Give us a call.

However, there is an important decision to make. Which type? There are typically two types of individual 401(k) plans to consider:

1. Recordkeeping only 401(k) plan -- also referred to as a self-directed 401(k)
2. Fully Administered 401(k) Plan

A recordkeeping only 401(k) typically has a lower setup fee versus a fully administered plan. But, it does have transaction fees for every trade you make as well as other fees that are often included in the fully administered version. A self-directed 401(k) plan offers a lot of investment choices of stocks, bonds, mutual funds, and ETFs similar to a retail brokerage account. Fully administered plans tend to have a set line-up of diversified funds like 401(k) plans designed for businesses with employees.

This chart can make it a bit easier to determine which is right for you:

So if you expect to add employees in the next year or have multiple owners now, a fully administered plan is a better fit. If you ever think you may need access to funds via a penalty-free loan or want to take advantage of Roth contributions; again fully administered is better.

But if you are self-employed for the foreseeable future, a sophisticated investor that is happy managing your tax reporting and don’t need any of the other bells and whistles, a recordkeeping only solo 401(k) could be right for you.

Our lower your taxes with a 401(k) plan guide shows scenarios where an owner is better off with a 401(k) than without one. An article we wrote for Forbes last year on tax moves is still completely relevant today. Give these a read, start a 401(k), and you just might find Uncle Sam is a whole lot kinder to you and your business this year.

The first blog just launched called “5 reasons your business is not too small for a 401(k)”. It discusses common myths that hold many businesses back from starting a retirement plan. Please take a read, see if you agree, and join in the conversation.

We look forward to hearing from you about your retirement strategies that make saving easier and more affordable than ever before.

You’ll find good overviews in the Education sub-tab of why ShareBuilder 401k has a low expense focus. Cost matters when it comes to investing, and it led us to offering an index-based fund solution that is quite unique in the industry. ETFs are a Great Fit for 401k Plans is a pretty quick and compelling read for anyone who wants a sound perspective on the advantages.

As you read through the different sections, you’ll even see mention of the ShareBuilder Investment Committee, which oversees the fund-line up and model portfolio asset allocations. It’s always good to have financial experts on your side.

These changes lower the average expense ratio of the ShareBuilder 401k investment line-up from 0.26% to 0.19% (that’s 27% lower) so our clients’ money will have the opportunity to work harder over time. A recent Morningstar report found, “In every single time period and data point tested, low-cost funds beat high-cost funds." Yes, not surprising, fund expenses can matter a lot as you build for retirement.

Unlike most 401(k) providers, we lower the business risk of offering a 401(k) plan by acting as the investment manager for every ShareBuilder 401k client. This means we take over the duties for your company of reviewing the investment line-up and managing it to the investment policy; something your company would otherwise need to establish on its own. Pillars of the ShareBuilder investment policy and philosophy include investment diversification and low costs.

Our Investment Committee does in-depth fund analyses that go well beyond expenses. We evaluate investments based on fund expense ratios, fund management and tracking error to the benchmark index, fund market cap, long-term investment performance, as well as other criteria. With eight members that are financial experts, three of which are CFAs, and access to advanced financial models, it’s a great benefit we can provide our clients.

Low-expense funds and rigorous investment oversight, we believe that makes for a great 401(k) plan.

If you have a 401(k) plan and are considering switching, you’re in for a nice surprise. Most find the online process is a breeze compared to the old paper way. The benefits are at least fourfold:

1. Lowers the cost of the plan: This may be the most obvious. When you eliminate paper costs and don’t need an army to manage plan setup and administration, a provider gains cost efficiencies that allows it to offer lower prices for setup and administrative services. If you compare 401(k) plan costs, you can pretty quickly tell which providers these are.
2. Saves time and your plan launches faster: It cuts out the back and forth paperwork which takes time and delays your rollout.
3. Eliminates confusion and complexity: Online setup can be much more intelligent than paper-based processes. An online setup only asks you the design questions pertinent to your company’s plan instead of showing every conceivable scenario possible. Paper-based plan establishment kits are rarely customizable so they can be pretty thick documents that show literally everything the provider can manage. That’s a fun read.
4. Reduces errors and delays: With online setup, information typically goes right into the providers systems so your plan is designed the way you intended. In paper-based kits, there can be manual errors re-entering the information into the provider’s system.

Pair an online system with top service, and you’ll have a great experience. Typically, expert Customer Success Managers will work a launch plan that ensures you get through the online process easily, that your payroll is ready to roll with the 401(k) information, and you have everything needed for your company and employees.

Whether you’re starting or switching 401(k) plans, a smooth, well-orchestrated online process is the way to go. And yes, you’ll likely find it is easier than setting up voice mail! Now you’re ready to save for a brighter tomorrow with a lot less hassle.

Common questions include:

• Is my company paying too much for our 401(k)?
• How do I minimize business risks associated with offering a 401(k) plan?
• Do we receive the employee guidance and education services that best support our needs?

When you compare costs, there are recordkeeping and administrative costs your business likely covers. Then there are participant fees where a lot of costs can be buried and that can hurt how much you and your employees have come retirement. With fee transparency legislation expected to come into play in the coming year, business owners and plan sponsors will likely soon have a much better idea of how much these fees really are sometime this year. Don’t be surprised if it’s more than you might have expected. It can be noticeably higher for small and mid-size businesses.

Now is a great time to receive a 401(k) plan check-up. Not only will you learn what sorts of opportunities exist with your plan, but it’s also a great way to stay in line with the Department of Labor best practice of a regular plan cost review.

We’re always happy to run a cost analysis and business risk assessment of your plan and detail the pros and cons of your plan so you can make the best decision for your business.

Well, that will quickly lead you down the path to considering a 401(k) plan and finding the right plan type at the right price.

Here are the top things to consider when finding the best provider for your 401(k) plan needs:

1. Keep participant fees <1%. That means when you add the average fund expenses plus any management fee, participant recordkeeping fees, or other fee charged to your employees, it sums to less than 1%. It is common for fund expenses, before adding other fees, to be well over 1.5% for smaller firms.
2. Choose the plan design that fits your business needs now and a provider that has options that can grow as your company evolves. Whether you need an Individual 401(k), a plan that vests over time for your employees, or want to consider advanced profit sharing options, you’ll want to ensure your provider can meet your needs today and tomorrow.
3. Consider a provider that lessens your business risks of providing your plan and manages the investments available in your plan for your company. By choosing a provider that is also an investment fiduciary, they will automatically ensure the investments are managed in line with the investment philosophy (e.g. low expense fund focus, diversification, etc…) and relieve you of this responsibility.

These three considerations will help ensure you have a low-cost, easy plan to manage that is run in the best interest of you and your employees. If you want to understand more about the questions to ask providers and costs involved with a 401(k) plan, read the Cost Guide.

Yet, the majority of workers have never had access to a pension, and in fact, pensions are on the decline. Social Security is designed to provide a nice supplement for American's retirement needs, but at the present, it is only funded through 2037. Without raising taxes or increasing the retirement age for Social Security benefits, it could be a pretty small supplement.

So that leaves one leg of the stool to rely on. That’s you. And you have the ability to put money away now for down the road. The next decision is to determine the best retirement saving option for yourself and others that are important to you.

For small business owners, the decision is often between an individual IRA and a 401(k) plan for their business (even the self-employed). As you can see in the chart below, a 401(k) can provide a real leg up in tax-deferred savings versus an IRA. You'll likely find it’s a pretty small price to pay for retirement.

Individual 401(k) plans, which are for the self-employed or any multiple owner business that does not have any employees, must be setup in 2010 to receive tax benefits. The good news is that you’ll have until your tax filing deadline (April 15, 2011 for most) to make profit sharing contributions into your 401(k) and still receive the tax benefits for 2010. ShareBuilder 401k has one of the later deadlines to buy and setup your plan. It is December 22, 2010.

Shelter up to $49K from Taxes with a 401(k)

Any owner-operated business can shelter up to $49K ($54,500 if you are 50 years of age or older). Plus you have Roth options and penalty free loan options in case of an emergency. To learn other benefits of an Individual 401(k) Plan, just give this a read.

Paying yourself first and giving yourself the gift of saving is one that can keep on giving for years to come. Happy Holidays!

It’s a benefit that offers great flexibility and is typically a fraction of the cost of other benefits such as healthcare. Here are 5 things you need to know as you consider what’s right for your business:

1. You can protect up to $49,000 a year in a 401(k) plan tax-deferred ($54,500 if over 50) -- that’s a lot of mullah.
2. You can put up to $16,500 ($22,000 if over 50) into a Roth 401(k) without any limits based on your income (unlike a Roth IRA).
3. The price for 401(k) plans for any size office can be very affordable thanks to online technologies and providers like us focused on helping every kind and size of business have access to a plan.
4. The business and personal tax benefits can outweigh the actual administrative costs of the plan --- that’s a good thing.
5. If you need access to your retirement savings in an emergency, you can do so with a penalty-free 401(k) plan loan (up to $50K).

Now is great time to get started so you are in position to make the most of your program.

Employer contributions to a profit sharing plan are discretionary and can even be $0 in tough years, although contributions are allowed even when the business doesn’t make a profit.

There are a couple other important things to note when considering a profit-sharing 401(k) plan:

• There is no personal deferral contribution by employees for profit sharing; it all comes from the company.
• Profit sharing can be given on a whole dollar amount where everyone gets the same, a salary percentage, or on a social security integrated basis (call us for an explanation if interested in this option. The maximum amount an employee can receive is $49,000 ($54,500 if 50+ years of age).
• There are advanced profit sharing options that allow you to award different amounts by age, tenure, or employee group. These require us to consider different scenarios to determine the best fit for your organization and this deadline has passed for a 2010 plan.
• The plan must be established in the current tax year, but contributions do not need to be made until the final federal return is filed for your business (e.g. setup prior to December 31, 2010 and contribute before April 15, 2011 for calendar tax year).

If you don’t have a 401(k) plan and have an urgent need to shelter money from taxes this year, you can do so with a profit-sharing only 401(k). You can also request to have your plan amended to a more traditional, safe harbor plan, or consider advanced profit sharing options for 2011 and beyond.

ShareBuilder 401k’s new product names include:

• Individual 401k for owner-only companies,
• Simplified 401k designed to help employee-based businesses easily maximize contributions and automatically satisfy government tests,
• Customized 401k that allows for flexible matching and vesting options,
• Tiered Profit Sharing 401k that enables businesses to reward employees by group, tenure or age.

If you’d like more information different plan type advantages, you may find this article of interest, or just give us a call.

Today, you may notice that we expanded our product line-up to include a 401(k) designed for those looking for advanced profit sharing options. If you don’t know about advanced profit sharing, it’s pretty hard to ask about it. We’re calling it the Tiered Profit Sharing 401k.

Tiered profit sharing is often a great fit for many partnerships and law firms. For example, a legal firm might differentiate profit sharing among the clearly-defined groups of partners, attorneys, paralegals and administrative staff. Our expanded platform and administrator’s support services enable us to customize the program to about any configuration possible that satisfy 401(k) regulations.

Our new product name, low pricing and enhanced services make it easy for any business to align business profits with each defined employee group’s impact on results. To learn more about our Tiered Profit Sharing 401k plans and the exciting world of new comparability and age weighted profit sharing, give this overview a read.

We take a very hands-on approach that is quite uncommon in the industry today. To minimize the issues employers face and to offer what we believe is a better 401(k) plan, we share the fiduciary responsibilities for the investment line-up of every ShareBuilder 401k plan with our customers. We are what is known as an ERISA 3(38) advisor. Investment expertise provides real value for most any company’s 401(k) plan and that’s why ShareBuilder's financial experts are here to help!

To provide you with a great investment line-up, the ShareBuilder Investment Committee oversees the investment options available in our plans along with managing the make-up of the five model portfolios (from conservative to aggressive) at least quarterly. The committee consists of seven investment professionals including three CFAs (Chartered Financial Analyst). To assist in our analysis, we use a model from ASI employing a Markowitz mean-variance technique designed to produce the highest expected return given the variable constraints (e.g. loss limits, historical returns, etc…) for each model portfolio. With this and other data, the investments line-up and model portfolios are managed in line with Sharebuilder 401k Investment Philosophy and Policy. Essential policy objectives are asset diversification and keeping fund expenses low.

In a nutshell, this means that we take this role very seriously. It’s a service few providers offer and we automatically include it in our pricing. We are here to provide you superior investment support and help you and your employees build a meaningful nest egg come retirement.

Yes, the impact of high fund expenses can take a big bite out of how much you have come retirement. Index fund typically have noticeably lower expense ratios than actively managed funds. Just consider that ShareBuilder's model portfolios have an average expense ratio of 0.21% — that's nice and low! Add in all the fund fees that participants pay in retirement plans which can cover everything from advisory fees to recordkeeping to distribution, and few can compare to ShareBuilder 401k.

This chart may be handy as you consider how participant fees tend to vary by the amount of money (assets) and participants in a plan – the key being how much money:

To learn more about the advantages of index-based investing, just read this guide.

*Cerulli Associates Quantitative Update, Retirement Plans 2009. The participant fees analysis assumes a 75% equity and 25% fixed income. The fees do not include administration, custom compliance, systems work, etc., that the employer may pay. ShareBuilder 401k participant prices reflect the expense ratio of our moderate model portfolio that most closely mirrors the Cerulli analysis equity to fixed income ratio and all applicable management fees.

As long as you plan to save more than the traditional IRA limit of $5K a year, it can make a lot of sense as the tax advantages can really add up.

The amount you can save in a 401(k) not only makes it easy to sock away a lot fast, but it can also significantly reduce taxes each year you contribute and potentially even drop you a tax bracket. One important thing to note, as long as you set up an individual 401(k) plan before year-end, you have until your tax deadline (April 15 for most company types) to profit share up to the maximum.

Read our previous posts to learn how much you can put into a plan this year or about the Roth 401(k) feature.

Advanced profit sharing enables a company to identify unique groups in an organization and reward employees’ a different share of profits by group. For example, a legal firm may have partners, attorneys, and staff. Each can receive a different payout structure of profits as part of their 401(k). This can be a great way to align goals and compensation by each group’s contributions to your company’s success.

Advanced profit sharing can be a much more cost-effective way to provide contributions to employees than the standard profit sharing method which applies the same percent of salary across the board to all employees. Many company’s use 401(k) profit sharing plans for the simple reason that employer profit sharing contributions placed into a 401(k) plan are tax-deductible for the firm.

You may find the article Profit sharing boosts nest egg in the Connecticut Post of interest. It includes an example of how an owner can save $49,000 a year and help employees too.

The good thing is a 401(k) can help lower your taxable income each year you participate and gives you the option to hedge against future tax increases with the Roth 401(k) option. Give the article The Great 401(k) Tax Hedge from the August Costco Connection a read to get more insights on how a plan can help you.

Want a few more insights on tax items? Give our earlier post 401(k) relief for upcoming tax law changes a read too.

Sharebuilder Advisors, LLC does not advise on tax requirements or issues. This post is for general information only and should not be construed as investment or tax advice as each person’s situation may be different. It’s always recommended to consult with a tax advisor to discuss the specific details around your individual situation and appropriate tax strategies.

1. Imagine if 100% of your financial expert’s job was to consult on 401(k) plans
2. Imagine if your consultant was a registered investment advisor (RIA) and must act in your best interest as required by regulations
3. Imagine if the consultant considered whether a 401(k) plan was even the right solution for your business
4. Imagine that the consultant helped you uncover all the important details to consider what type of 401(k) plan design was the best fit for your business (it could save you thousands of dollars in cost)
5. Imagine if your advisor’s goal was to keep your costs low and helped lower your business risks

Well, now you’ve found something really unique. Very few financial representatives focus solely on 401(k) plans. Most are interested in managing the personal money of the wealthier people at your firm and the 401(k) plan is a secondary thought.

At ShareBuilder 401k, all we do is help small businesses determine the right 401(k) plan for their business and help our clients build their retirement savings. No need to imagine any longer, we’re here to help!

So what one thing can make a difference in helping you select the right funds? All else being equal, the one thing you can control is cost. When evaluating investments, you will want to know how much you will pay in fund expenses.

Historically, low-expense funds tend to fare better than high-expense funds. No matter if you look at Morningstar or other “unbiased” analysis, low-expense funds have held the advantage over time. It’s why ShareBuilder 401k offers something rare in the 401(k) industry: an all index-based fund line-up. Our goal is to keep your expenses as low as possible to help your money work harder as you build for retirement.

1. Let you save up to $16,500 into your 401(k) account ($22,000 if 50 years of age or more) without restrictions common with other plan types
2. Let you choose whether to save on taxes this year by making contributions tax-deferred, or hedge against higher taxes in the future by contributing after-tax to the Roth 401(k)
3. Automatically satisfies IRS testing requirements for 401(k) plans

We have some great news, there is. It’s called a Safe Harbor 401(k) plan. The Safe Harbor option allows business owners to contribute the maximum deferral amount to their own account and as a result lower their personal taxes this year. By providing a “safe harbor” match for employees, any employee including the owner can give the maximum to the plan. This match is what helps the business avoid the hassles of government discrimination testing. And the match will be tax deductible for your business.

If you are looking to save more for retirement and/or lower your taxes this year, our deadline for this kind of plan for this calendar year is September 21st! To get more details about Safe Harbor, just download our guide.

1. What’s the best retirement plan option for small business?
2. What does the perfect 401(k) plan look like?
3. 401(k) Plan Service -- What Do I Need?
4. How to get a fair priced 401(k) plan for your business
5. Tax Breaks that Make a 401(k) a No Brainer for Your Business
6. Three Easy Ways to Reduce Your 401(k) Fiduciary Risk
7. Why A, B, C funds are bad for your 401(k)
8. How to save $49,000 a year in a 401(k)

Twenty minutes of your time to get familiar with these topics and you’ll be all set to have a 401(k) plan that can make a big difference for you and your employees.

What Regulations Help Guide a 401(k) Plans Fund Make-up?
When it comes to 401(k) plans, there are several critical items to consider in determining which funds are a good fit for 401(k) plan with respect to both the regulations and the Department of Labor guidance.

A company has some important duties that it is responsible for (liable) in offering a 401(k) plan:

1. The company is required to run the plan in the best interest of all employees at all times
2. Every company’s plan is required to offer diversified investments to help minimize risk of large losses

Point number two above is very important and is good common sense for retirement investing to begin with. Given this, narrowly defined or highly volatile ETFs are going to be a poor fit in a retirement account. Covering the major asset classes and providing a select few specialty funds is the smart way to go.

How Many Funds Should Be in My 401(k) Plan?
The law indicates three funds / asset classes are the minimum required (stock, bond, cash). That is very minimal in today’s world of hundreds if not thousands of investment offerings. However, too many options will hurt participation in the plan. Somewhere between 12 and 18 fund choices should put the plan on strong footing.

You can see in the ShareBuilder 401k fund line-up that it’s been built to make most any participant happy in any size office. And as we’re a registered investment advisor, we help limit your fiduciary business risks as our Investment Committee continually monitors the fund line-up and model portfolios in line with our low-cost Investment Philosophy for your company.

If you are still uncertain, give this previous post a read for a few additional insights or just give us a call.

1. Lowering your taxes this year with tax-deferred contributions (or even hedge against future tax increases with a Roth 401(k).
2. You can build a next egg that matters. If you’re young, you have the power of compounding on your side that can make it easier to reach your goal. Start late and you can contribute up to $22,000 a year once your 50 over older ($16,500 if under 50).
3. You get access to cash in emergency with 401(k) loans so you have some flexibility here.
4. You help your employees save too plus it helps retain your key players and keep those hiring costs in check.
5. Who else is going to help you come retirement if you don’t? Social Security and other programs may not be fully there for you.

Given it takes all of about 20 minutes to purchase and setup your plan which will be ready to deploy a few weeks later, now is truly a great time to start something that is good for you and your company.

1. Low, transparent pricing for the business (and ideally automatically lowers prices for business and participants as your plan grows without any contracts)
2. Is easy for the company to setup and supported on-going to manage payroll and year-end requirements, etc…
3. Minimizes business risks for your company with a real skin in the game with you
4. Offers funds that keep fees less than 1% for participants so their money works harder
5. Takes a long-term, diversified, and preferably an indexing approach for your fund line-up
6. Has an Investment Committee that manages your fund line-up and model portfolios
7. Provides all the employee guidance tools, training and support to answer employee questions quickly and help them reach their goals

If your provider does all this, you have pretty fantastic 401(k) plan. Chances are you don’t have one of these rare programs. Give us a call. We’re happy to help you compare plans to see how they really stack up.

The typical 401(k) plan tends to offer actively managed mutual funds with just a few if any lower-expense index mutual funds. Actively managed funds typically incur greater costs due to:

• All the research and the costs of trading stocks and bonds within the fund
• Added costs to manage an actively-managed fund (more people, support, etc…)
• Distribution (the person who sold your company the plan) and marketing that are charged via 12b-1 fees, front or back-end loads, etc…

Here’s the catch. For each extra dollar of expense incurred, the fund must overcome these expenses to outperform its benchmark index (usually the success measure of the fund).

These higher expenses would be fine if evidence supported that actively-managed funds were consistently outperforming the indexes. While no one can predict the future, history has sided with index funds. Across major asset categories, the benchmark indexes have historically beaten 60% to 75% of actively managed mutual funds over a five-year period of time, according to the Standard & Poor’s Indices versus Active Funds Scorecard.

When you understand this, it’s down right surprising how rare the index-based 401(k) plan truly is. Some of us are working to change all that and give Americans what we believe is a better 401(k) plan.

1. Surrender charges if you changing providers prior to the end of a contract (this is in addition to a typical plan termination fee charged by the plan administrator)
2. Plan contribution minimums (the provider basically wants your employees as a whole to help continue to grow your plan to help offset lowering your pricing)

Doing business with a 401(k) provider should be a whole lot easier and that’s why we automatically lower our clients pricing when they pass asset milestones. We lower both company costs and participant fees without any contract mumbo jumbo. This not only helps the company save on costs, but also helps employees’ money work even harder. And that’s our mission, to help Americans save their money.

Our automatic pricing discounts are an important way we take care of our clients and ensure that they always receive great value in service and in price no matter their size. We think it’s the right way to do business. How about you?

It’s common that the 401(k) provider and record-keeper that sell and support your plan have little to no liability for your investments in the plan or nearly anything else for that matter. If there are concerns or even an employee lawsuit about the fund offerings in the plan, the owner and other “fiduciaries” of your company plan are liable.

That’s why it can make a lot of sense to use a registered investment advisor (RIA) to select and monitor investment options and serve as an investment co-fiduciary for your plan. By assigning this duty to a RIA, issues around the investment line-up and managing your funds and any model portfolios on-going are now the responsibility of the RIA. It’s a nice safeguard.

If you want to minimize this risk and most do when they are “in the know,” be sure to ask the providers that you consider if they will serve as an ERISA 3(38) advisor for the plan. Just know that if you are selecting the funds from a list an advisor or registered representative presented you for your plan, you have not lowered your business risks.

Now you know some insights on why ShareBuilder 401k serves as an ERISA 3(38) RIA for our customers and automatically delivers you the backing of our 7-person Investment Committee.

While there is no one right answer for everyone, there are some good rules of thumb to get on the right track as you determine what makes sense. The most common rule of thumb is to accumulate 8 to 10 times your annual income by the time you hit retirement. This generally requires putting away 10-15% of your salary. Starting at 10% makes sense for a lot of people. If your company matches contributions in your 401(k), that can help get you much closer to the 15% level and put you in even better shape down the road.

Unsure what to invest in? Give this post a read too.

Happy Saving!

Traditional 401(k) plans are built predominantly with actively-managed mutual funds with perhaps a few lower expense index mutual funds. And there can be loads and other expenses associated with these funds to uncover. Actively-managed funds typically incur greater costs in research and trading than an index fund. For each extra dollar spent, the fund must overcome these expenses to outperform its benchmark index.

Unfortunately, the majority of these higher expense funds have not been outperforming the indexes. No one can predict future performance, but to date, history has sided with index funds. Across major asset categories, the benchmark indices have historically beaten 60-75 percent of actively-managed mutual funds over a five year period of time, according to the Standard & Poor’s Indices versus Active Funds Scorecard. It is very difficult for professional money managers to consistently achieve results similar to the targeted benchmark index – yes, the very ones ETFs are built to track.

To understand all the ways ETFs can help your 401(k) plan, please read our interview with ETF Trends.

Unfortunately, even the best reasons won’t help you later on down the road. No one is really going to help you get there other than yourself. Government programs like Social Security are no guarantee. And the reality is it can be tough to save if it’s not on autopilot with each paycheck. 401(k)s don’t have to be costly or complex and offer many advantages over other options. Truth of the matter is, having a cool million or two come retirement age offers a lot more options to enjoying life in the way you’ve envisioned.

There is no time like the present to start thinking about saving and the difference a 401(k) plan can make in your and your employees lives.

An investment policy simply states the philosophy on which the plan will be monitored and run to meet your employees’ needs. We believe there is one philosophy that stands above others, and it is why all ShareBuilder 401k plans are built on this philosophy. In fact, each of our customers' plans are automatically established with the ShareBuilder 401k investment policy.

We believe focusing on the things an employee can control like costs and diversification are the backbone for a good 401(k) plan. We base our philosophy on three tenets:

• Diversification is critical for success: Studies have shown how much you hold in stocks, bonds and cash is the most important decision invesors’ make.
• Cost Matters: Low-expense funds are the one cost every investor can control. Higher cost does not mean better performance in investing. Historically, index-based funds have outperformed the vast majority of actively managed funds which typically have much higher expenses.
• Investing is a long-term proposition: Trends and trying to time the market are not a philosophy – they are guesses at best.

This philosophy led us to offer low-expense, ETF-based 401(k) plans. Our Investment Committee proactively manages and adjusts the fund line-up and model portfolios for our customers in line with our investment policy. This offers additional benefits for customers too. This design coupled with our investment committee support simplifies a company’s management of its retirement plan responsibilities and limits fiduciary risks too.

Here’s to helping your money work harder!

What if a professional investment committee oversaw the fund line-up and allocation in each portfolio on an on-going basis for you automatically?

Well, these are just a few of the things we do to help employees get off to the right start with confidence. It’s a great way to help employees simply answer what can be the toughest question, “what should I invest in?”

Add in key features such as auto-rebalancing and education programs, and it gets that much easier for participants to keep their investments in line with their goals. That’s important, as it’s common for employees to only check in a few times a year on their account. The easier it is to make and maintain smart decisions, the better.

At ShareBuilder 401k, we’re redefining what a great education program looks like. We deliver 401(k) education and guidance in the way your employees are likely to use. The program is designed so the information that needs to be noticed will be. For guidance that is helpful, it is personalized so it is more relevant and likely to be read by your employees. Some of the key components of the program we do automatically for clients include:

• Online enrollment video so even employees that miss the launch meeting won’t miss important points about your 401(k) program.
• Quarterly account review emails provide personalized assessments of each employee’s savings and fund diversification and offer general tips for success.
• Online guides, calculators, and more so that financial literacy is a click away.
• Our Investment Center makes it easy to understand fund and model portfolio objectives, expenses, and historical performance.
• And while we are all for saving the trees, paper statements are an option.

People consume and accept information differently now. We can all make a difference in helping folks save for retirement by leveraging all the ways people prefer to receive and take action on information. A substantial nest egg is a great reward.

1. What sort of employee education will be provided at launch and on-going (and how will you manage this automatically for my company)?
2. How are my employees supported and when they have questions who do they call (and what sort of service level is considered acceptable – demand at least 70% of calls answered in 30 seconds)?
3. How will you assist me launch the plan and help me manage contributions, payroll, employee changes , etc… on-going?
4. How will you assist me in managing the various IRS requirements from any necessary tests to the annual form 5500 preparation (and do you charge extra for this)?
5. What additional tools and resources will help my employees and I (plan sponsor) simplify our use of our 401(k) plan and accounts?

These questions are important for many reasons. First, it’s essential to ensure you are running your plan as intended which reduces your fiduciary risks. You definitely want to ensure everyone gets the most out of your plan. And lastly, you do not want to waste your or your employees’ valuable time and money managing service questions that could easily be covered with a good program. To help get an idea of what you might like to see, our Complete Suite of Services Overview can help you get a sense of what a solid program should look like.

Most folks find a fund prospectus intimidating and difficult to decipher to find all the fees beyond the fund expense ratio. It doesn’t need to be this hard. By offering low-expense funds and displaying all fees with an at-a-glance summary chart, employees can get an easy understanding of fees and make better selections without any costly surprises. It’s why we provide our full fee disclosure to the public with education on how to get a fair priced plan with low fees: www.401kcostguide.com.

Taking five minutes to peruse this site may just save you nice chunk of change for down the road.

Understanding Fund Classes at a Glance

Class A, B, and C shares often have significant sales loads. It will either be a front-end load (a charge every time you buy into the fund), a back-end load (a charge when you sell the fund), or an on-going fee. In 401(k) plans, each paycheck employees contribute to their plan and purchase shares, so a front-end charge can really take a chunk of what you and your employees contribute. Same for when you sell a fund with a back-end load. This is why these fund classes can be particularly bad fit for 401(k) plans. Here’s the quick skinny on the differences:

There is little to no difference in what stocks or bonds are held in a specific mutual fund that offers different class options, and why lower-expense, no load funds will be a better value for you and your employees.

How to ensure you have low-expense funds

For a 401(k) plan, Class I shares are designed for business customers and other institutions. These and ETFs tend to have lower fees with no loads compared to other classes. Class R shares are also common in retirement plans and typically have higher fees than Class I shares. Small businesses are often excluded from Class I options due to lower asset size versus larger company plans. For ETF-based plans, look for providers that waive ETF transaction fees as these add costs. Any asset management fee participants pay in an ETF-based plan will be clearly separate from fund expenses so you know what you are paying for. It’s one important reason ETFs are making in-roads into 401(k) plans. http://www.sharebuilder401k.com/news/post.aspx?postID=36 Thu, 15 Apr 2010 12:00:00 GMT http://www.sharebuilder401k.com/news/post.aspx?postID=35 In a post a few weeks ago, we discussed that one of the most common questions employees have when they decide to contribute to their 401(k) plan is, “what should I invest in?” The first step is typically determining your investment strategy. The next is actually selecting the funds.

Our guide, Six Rules for Making Smart Investment Choices, gives the low down on building the right mix of funds for your situation. It’s a good, short read that can help you get on course to reaching your goals.

In addition, the recent healthcare bill has provisions that allow for the first time a new Medicare tax of 3.8% on investment income starting in 2013. This will include interest, dividend, capital gains, and other investment income. And there could be more as the bill enables the potential for further tax increases in 2018.

One way to help keep the taxman at bay, and help protect more of your personal money from taxes, is to make use of the high contribution limits of a 401(k) on a pre-tax and/or even on a post-tax basis (Roth 401(k) option has no income limits). As a pre-tax advantage, a 401(k) can lower taxable income for the current year. If you give post-tax into your 401(k) account, it can help manage future tax concerns as earnings and all are never taxed again assuming you use after reaching retirement age. In either scenario, the interest, dividends and capital gains are not taxed in your 401(k) account. Call it a tax diversification strategy or a great tax hedge. Either way it’s a good way to keep more of your money both today and tomorrow.

Sharebuilder Advisors, LLC does not advise on tax requirements or issues. This post is for general information only and should not be construed as investment or tax advice as each person’s situation may be different. It’s always recommended to consult with a tax advisor to discuss the specific details around your individual situation and appropriate tax strategies.

It can be an intimidating task if you never have had the chance to learn about stocks, bonds, and how the whole marketplace works. The good news is that it doesn’t take a lot of time to get a grasp of the basics and start out on the right path. Give our 5 Rules for Creating a Sound Investment Strategy a read and get a jump on building a smart plan. It also recommends some good books for those that want to dive in deeper.

For the roughly 50% of Americans that have access to a 401(k) plan, we enjoy an investing tactic that is automatic for the vast majority – it’s called dollar cost averaging. Each pay period most of us contribute a part of our paycheck into our 401(k) account. When the markets are down, your 401(k) contribution buys a greater number of shares. When the markets are up, your money purchases fewer shares. Because you receive more shares when markets are down, you tend to be better off as markets recover.

Take a look at this example of how this can work for you:

In this dollar cost averaging scenario, you've earned 8.35% even though the market has not come close to exceeding the previous market high. If you checked your 401(k) balance last year and then again now, you’ve probably seen a very nice boost.

To be certain, dollar cost averaging won’t assure a profit or protect against loss as your experience will vary with stock selection and changing market conditions. But, it is a best practice as “timing the market” has proved about impossible even for the best professional money managers. To learn more about developing an investing strategy for your 401(k) account, give this guide a read.

With the support of a good provider and some straightforward knowledge, there are some easy ways to reduce your risk as a fiduciary. Strong provider support can also make it easier for employees to manage their account with the right information, which is good for everyone.

So, without further adieu, the three ways to lower your fiduciary risk are:

1. Run your plan in line with ERISA 404(c) rules. This offers you limited liability relief for losses an employee could experience with their investments based on their own decisions and direction. We make it easy for all our customers to be 404(c) compliant. Download our 404(c) checklist to get a real good sense for best practices and how we work to make it simple.
2. Select a Qualified Default Investment Alternative (QDIA) for employees that don’t take active control of their investing in your program. The employee may have money in their account from an employer profit share, match, IRA rollover, or auto-enrollment situation and simply never logged on to direct how he or she wants to invest these monies. Putting the money in a stable fund or money market does not meet the requirement and have been a common practice. We ensure all new ShareBuilder plans are automatically covered with QDIA.
3. Use a registered investment advisor (RIA) to select and monitor investment options as a co-fiduciary. With an investment co-fiduciary, the advisor will share in any issues that may arise from the investments offered in your plan. Many small businesses do not have an investment committee. It’s one reason ShareBuilder 401k serves as your RIA and automatically delivers you the backing of our 7-person Investment Committee. The committee regularly monitors your investment line-up and adjusts model portfolios in line with the Investment Policy. Not many providers will offer you this safeguard.

Yes, this topic may have seemed a bit intimidating at first, but as you can see with the right knowledge and support, you can run a great program with minimal hassle or risk.

Shooting for 1% or less in participant fees can make a big difference for you and your employees. Just 1% of additional fees can take a big chunk from how much you have at retirement age. Consider a hypothetical situation of two investors, John and Alan. Both have $50,000 in a 401(k) plan and never contribute to it again. They are fortunate to both achieve 8% fixed returns each year. However, Alan’s funds have an average of 2% in fees and John’s only 1%. The effect of the higher costs compounds and becomes profound over time.

John will have saved $372K in 30 years and Alan will have $274K. That’s $98K more for John than Alan. Extend this another 10 years to 40 years, and John has a whopping $242K more than Alan ($727K for John vs. $484K for Alan)! That’s a meaningful difference. And keeping fees low can be an easy way to meet some of your fiduciary duties for your business.

The first easy thing to do is align your 401(k) account’s asset allocation with your goals. Each person’s time horizon to use these monies and risk tolerance is different, so each person’s “ideal” allocation will vary. A good rule of thumb to start is to use your age for how much to put in bond and cash funds. As an example, if you are 45, ensure 45% of your 401(k) account is in bond funds and 55% in stock funds. If you are unsure of which funds to select, selecting a model portfolio that best fits your situation or reading our Savings Guides can help you determine what’s right for you.

The second way to get more out of your 401(k) is to take advantage of auto-rebalancing. This feature automatically adjusts your asset allocation to the percentage you choose either every quarter or year depending on your provider’s options. Many people’s asset allocation gets out of whack as they may not regularly review their account to make needed adjustments. This can expose your savings to greater market risks than you want. Overexposure can feel okay in up markets, but can be down right bad in down markets. Auto-rebalancing can be a great way to keep your savings in line with your goals.

Lowering this year’s tax bill

A 401(k) enables you to help lower your current year taxes through personal contributions of up to $16,500 pre-tax ($22,000 if you are over 50 years of age). Plus with an optional company match and/or profit sharing, you have the ability to put up to $49,000 ($54,500 if over 50) a year into your account. Self-employed owners love this option as saving $49,000 a year can drop you a tax bracket!

Lowering future taxes with a Roth 401(k)

If you want to hedge future tax consequences with the Roth 401(k), you are able to do so with your personal after-tax contributions of up to the $16,500 limit. By contributing after-tax now, your withdrawals from your Roth savings in the future will be tax-free earnings and all!

You also have the choice on how much you want to tax diversify by contributing some, all, or none of your money into the Roth option. Yes, you determine how much you want to contribute pre and/or post tax. Just know that all company matching and profit-sharing contributions are required to be on a pre-tax basis as you consider what’s right for you.

Not a bad way to keep more of your money both today and tomorrow.

Sounds kind of scary, but there is no reason it needs to be. With a little education, it should be pretty easy to stay well within the rules.

Drum roll, please… the eight core obligations are:

1. Put your participating employees’ best interests ahead of the company’s and control administration expenses. Things to do: Offer diverse investment options, ensure employees have easy access to the plan and guidance materials, and keep costs low both for participants and your business costs.
2. Make sound decisions with care that a prudent person would under similar circumstances around your retirement plan. Things to do: Use good judgment and weigh your decisions before you act – pretty straightforward.
3. Diversify investments to minimize risk of large losses. Things to do: Ensure you have an Investment Policy Statement and your investment options cover major asset categories across stocks, bonds, and cash (all ShareBuilder 401k plans automatically do both). Offering model portfolios that automatically diversify based on various employee risks and time horizons are good to offer.
4. Ensure you are aware of what any co-fiduciaries are managing and use care to prevent breaches. Things to do: Review your plan assets and payroll submissions on a regular basis and look for any large dips in balances.
5. Hold plan assets within the jurisdiction of the US courts. Things to do: As long as you have a respected, well-known provider, you are probably okay. Always ask your provider to be sure.
6. Purchase a fiduciary bond in the amount of 10 percent of funds handled up to $500,000 maximum bond ($1M if holding employer securities). Things to do: make sure you have one and that it covers the appropriate amount.
7. Run the plan in accordance with how you set it up and is fully outlined in your Plan Document you received when you started the plan. Things to do: If you make any changes to your plan, ensure you have your Plan Document amended. It’s better to do this before implementing the change.
8. Don’t tamper with assets in your company’s 401(k) program for any business needs (prohibited transactions). Things to do: Using the assets of the plan (assets of your employees) for company needs is not an option even if you intend to pay it back. You of course can manage your own 401(k) account at any time and there is often a loan option from your individual account if you need emergency cash.

If you ever have questions here, just give us a ring.

Don’t let the wolf blow your house down

Actively managed mutual funds typically incur greater costs due to research and trading costs as they try to outperform a benchmark index. Yet for each extra dollar spent, the fund must overcome these expenses to try to outperform its benchmark. And that’s the rub.

So how do these actively managed funds stack up historically? Well, depending on the asset category (growth vs. value, large vs. small company funds), 70-85% of actively managed funds fail to beat their target index over time.

Let’s work for something a little more concrete!

This is one important reason among others that we believe low-expense index funds (in particular ETFs) are much better for retirement plans, and a way to move ahead of the pack and on track to meet your financial goals.

Unlike some services and industries, paying higher fees does not mean higher performance when it comes to investing. In fact, it can be quite the opposite. High fees tend to be a big drag on retirement funds over an employee’s lifetime and are all too common in small business 401(k) plans.

We believe that no matter the size of your business, every 401(k) plan needs to deliver great value not only in features and services, but also in price. We think the new automatic pricing program is the right way to do business – upfront, transparent, and at a great price!

1) Expenses (as we say, costs are a drag!)

2) Lots and lots of choices for your employees

A fund must overcome every expense it incurs to try to equal its benchmark -- typically a market index such as the S&P 500. The higher the expense, the tougher it tends to be. The best investment managers find it difficult to consistently overcome high expenses, and this reason is why we only offer low-expense index funds (ETFs) for our stock and bond funds.

And surprisingly, or maybe not when you take a step back, the more fund options offered in your 401(k) plan, the fewer employees that will participate in your program. That’s right, the more choice, the less participation you will see. This starts happening around 12 to 16 options according to various studies.

The important thing is to cover the major asset classes plus a few core specialty funds and keep the investment options straightforward. This helps make it easier for everyone to get started and on their way to reaching their goals.

Changes will be needed to change this situation, and it likely means we each need to put away more on our own to cover our later years.

Give a read of our last post on top 5 reasons to start a 401(k) now to understand how a plan can help you and your employees to be in a stronger financial position to manage the road ahead.

Yes, we may be a little biased as this is what we do to help people save, but please do consider our top 5 reasons to start a 401(k) plan now and check it off your resolution list:

1. You can protect up to $49,000 a year in a 401(k) plan tax-deferred ($54,500 if over 50) -- that’s a lot of mullah.
2. You can put up to $16,500 ($22,000 if over 50) into a Roth 401(k) without any limits based on your income (unlike a Roth IRA).
3. The price for 401(k) plans for any size office are very affordable thanks to online technologies.
4. The business and personal tax benefits can outweigh the actual administrative costs of the plan --- that’s a good thing.
5. If you need access to up to $50K of these funds in an emergency, a 401(k) plan loan is an option you can consider.

Cheers to a prosperous 2010.

1. The more you contribute typically the better position you will be for retirement
2. You pay less tax to the government this year!

Let’s take a simple example and do the math. Let’s say you earn $100,000 and 25% or your earnings go to Uncle Sam. If you contribute 5% of your salary to your 401(k) account for this year that is $5,000 you saved for down the road. And now your taxable income is reduced to $95,000 before any other deductions you may qualify for. You pay $1,250 LESS in taxes just for contributing to your 401(k). To understand your specific tax situation better, it’s always a good idea to talk to a tax advisor.

And saving more won’t likely put you in a pinch

If you receive a paycheck twice a month, the impact to your take home pay is less than you might think. When you contribute 5% of pay to your 401(k), your take home pay in the example above is $3,958 each paycheck before taxes and other deductions you pay.

Now let’s increase your 401(k) contributions to 7%. Saving 7% of your salary means your paycheck would now be $3,875 per pay period, or $83 less per paycheck than saving 5% each check. But the good news is that you are now putting $292 toward your 401(k) each payday. That’s a pretty simple way to get on track and give yourself more financial options today and for when you reach retirement.

If you take a 401(k) loan you will likely hurt your retirement savings as the loan amount will not have the opportunity to grow with your investments during the time it is out, and there are still potential tax consequences if you lose or switch jobs and are unable to pay off the loan balance. 401(k) loans don’t transfer between employers, and the unpaid amount is typically due within 30-90 days of leaving an employer. The savings impact and potential penalties if you are unable to pay back the balance is why it is taboo to take a 401(k) loan.

Read this guide to get the full scoop on 401(k) loans including rules on the amount individuals are able to access, typical payback schedules and the tax penalty for defaulting on a loan.

Even worse, the plan sponsor often takes on all the fiduciary risk for your company’s 401(k) plan offering. The problem is most employers are not financial industry experts and are put in the position to be one in establishing and managing their 401(k) plan.

To minimize these issues employers face, we share the fiduciary risk with every ShareBuilder 401k customer. The ShareBuilder Investment Committee consists of seven investment professionals that review the ShareBuilder 401k fund offerings and model portfolio allocations at least quarterly. In addition, we employ outside firms to further review our investment programs.

When we originally set out to develop a better 401(k) plan for any size office in late 2005, we chose to take what continues to standout as a unique, and we believe powerful, approach. Selecting index funds comprised of a preset line-up of exchange-traded funds (ETFs) that cover all major asset classes plus a money market was and remains a refreshingly different 401(k) program.

We selected ETFs due to the low expenses and historically strong performance of index funds. We believe an indexing approach where the funds and model portfolios are continually reviewed by an expert Investment Committee is not only the right thing to do, but a great thing that is far too rare in the industry.

At ShareBuilder 401k, our cash and bond offerings include a money market, three US Treasury index bond funds, and one aggregate index bond fund which holds government and corporate bonds.

One of the bond funds is a TIPS index fund (Treasury Inflation-Protected Securities adjust underlying securities to counter inflation) so you can hedge against inflation risk too. Treasury funds can be a nice alternative for those that are not ready to be exposed to the stock market as well as a good place to have more of your money as you near retirement.

So you might be asking how much is the right amount to invest in bonds versus stocks? While there is no right answer for everybody, a rule of thumb for your retirement account is to invest your age in fixed assets and the rest in stock funds. If you are 55 years of age, you’d allocate 55% of your savings in bond and/or cash funds and 45% of your savings in stocks.

If you are not sure which funds to select, choosing one of our model portfolios can be a great way to start. Our model portfolios funds are designed for different risk tolerance and time horizons to make it easier to find the investments that best fits your goals.

This additional time will allow you to better review your earnings and tax situation so you can determine the right amount to contribute to your plan for 2009. Solo 401(k)s can put up to $49,000 into their 401(k) plan for 2009. For companies with employees, there are multiple ways to profit share with your 401(k) plan and we suggest reading our earlier post to understand the option that best fits your needs.

Our deadline to purchase a 2009 plan is December 21st.

1. The business does not currently have a 401(k), has a direct need to lower taxes for the current year, and has missed the end of Q3 Safe Harbor deadline.
2. A company has a cyclical business where profits vary widely from year to year.
3. The firm wants added flexibility to reward employees more for exceeding business goals.

Employer contributions to a profit sharing plan are discretionary and can even be $0 in tough years, although contributions are allowed even when the business doesn’t make a profit.

There are a couple other important things to note when considering a profit-sharing 401(k) plan:

• There is no personal deferral contribution by employees for profit sharing; it all comes from the company.
• Profit sharing can be given on a whole dollar amount where everyone gets the same, a salary percentage, or on a social security integrated basis (call us for an explanation if interested in this option). The maximum amount an employee can receive is $49,000 ($54,500 if 50+ years of age).
• The plan must be established in the current tax year, but contributions do not need to be made until the final federal return is filed for your business (e.g. setup prior to December 31, 2009 and contribute before April 15, 2010 for calendar tax year).

If you don’t have a 401(k) plan and have an urgent need to shelter money from taxes this year, you can do so with a profit-sharing only 401(k). You can also request to have your plan amended to a more traditional or safe harbor plan for the next and on-going years.

]]> http://www.sharebuilder401k.com/news/post.aspx?postID=16 Tue, 17 Nov 2009 13:00:00 GMT http://www.sharebuilder401k.com/news/post.aspx?postID=15 Unlike healthcare benefits, 401(k) plans are typically a low-cost program for any size business. According to the 2009 Annual Employer Health Benefits Survey by Kaiser Family Foundation, the healthcare cost to cover a single individual is $4,824 per year and for an employee with family coverage it is $13,375. For a small business, a 401(k) is a fraction of this cost generally ranging from $15 a month for a solo 401(k) plan to $200 a month for a plan with 50 or more employees.

With Americans living longer and healthcare costs continuing to out pace inflation, saving in a 401(k) plan can help make retirement financially easier and save you some in taxes along the way.

And don’t forget about the cost of replacing employees. Top talent will almost always have other employment options regardless of the economy. While the voluntary turnover rate this year is likely much lower given the current economy, historically over 23% of employees leave their employers every year by their own choice. When you take into account the time and lost productivity, the cost to replace an employee is typically 29% to 46% of the employee’s salary (so that’s $14,500 on the low end for a $50,000 salary).

]]> http://www.sharebuilder401k.com/news/post.aspx?postID=15 Tue, 10 Nov 2009 13:00:00 GMT http://www.sharebuilder401k.com/news/post.aspx?postID=14 Many self-employed people are learning that they can have a 401(k) plan just for themselves. That’s great as there can be some real advantages versus other options like an IRA. Because there is typically a small price to setup and maintain an individual 401(k) plan, here are three things to consider upfront that will help you decide when it will make sense for you:
1. Are you in position to contribute more than $5K a year on-going in your account? If not, an IRA is likely your best option. To make a 401(k) worth your while from a savings and tax standpoint, you’ll want to take advantage of a 401(k)’s higher contribution limits.
2. Are you looking to lower your taxes this year? If so, a Solo 401(k) enables you to contribute up to $49,000 tax deferred in your 401(k) account ($54,500 if you are over 50). This could even drop you a tax bracket!
3. Do you earn too much to have Roth IRA? If so, there is no income limit to use the Roth 401(k) option of your account and you can contribute up to $16,500 into it this year.

And with a 401(k) plan you receive the peace of mind that in an emergency, you can access your funds with a 401(k) loan and then pay your 401(k) account back (generally a 5 year term – there may be tax penalties if you do not pay it back). Given the low cost, flexibility, and high contribution limits, a solo 401(k) can be a great way to save.

]]> http://www.sharebuilder401k.com/news/post.aspx?postID=14 Wed, 04 Nov 2009 00:42:58 GMT http://www.sharebuilder401k.com/news/post.aspx?postID=13 Most know that 401(k)s offer high contribution limits, but many think the current annual limit is $16,500 ($22,000 if over 50+ years of age). Yes, they are absolutely right for what an employee can contribute to their account. However, with an employer’s company matching and/or profit sharing, the limit is much, much higher.

No matter what kind of business you are or even if you have employees, the all-in annual limit for each employee is $49,000 or $54,500 if you are over 50. This can result in serious tax savings and why many self-employed business owners -- solo 401(k) plans -- find this very advantageous.

Here’s how it works. If your company is structured as a corporation, the employer can contribute up to 25% of the company’s W-2 payroll into the 401(k) plan. This -- including your employee’s contribution of up to the $16,500 -- is capped in total at $49,000. If your business is an LLC, it is 20% of your net schedule C (IRS form) with the same $49K limit. While this limit is unrealistic for many companies with a large employee base, the amount an employee can benefit is well beyond what most people are aware. These high limits can be quite a benefit with real saving and tax opportunities for you and your employees.

]]> http://www.sharebuilder401k.com/news/post.aspx?postID=13 Wed, 28 Oct 2009 01:54:08 GMT http://www.sharebuilder401k.com/news/post.aspx?postID=12 We often get asked how ShareBuilder 401k can offer a leading-edge 401(k) program to customers at pricing that is so low.

It’s really quite simple. Our focus is on intuitive web design and electronic education programs to enable employers and employees to have a great experience with a best of breed 401(k) plan. This tends to mean much lower costs which can unleash your potential to save more. That’s the ShareBuilder 401k goal: help America’s small businesses save!

More specifically, we specialize and invest in servicing customers expertly over the phone and on the web. We don’t carry the overhead of tens to hundreds of employees (feet on the street) that most industry firms must support across the country.

Moreover, we automate tasks online from quote to plan installation that traditional firms manage manually. This saves customers’ time and money. By delivering a paper-free solution, we eliminate other waste and costs. And we eliminate charging transaction fees for participant trading Exchange-Traded Funds with our proprietary technology.

We invite you to take a look under the hood with our demo or by receiving a quote. Of course, you may just prefer to give us a ring!

]]> http://www.sharebuilder401k.com/news/post.aspx?postID=12 Tue, 20 Oct 2009 22:46:22 GMT http://www.sharebuilder401k.com/news/post.aspx?postID=11 The Roth 401(k), not to be confused with its Roth IRA cousin, is a fantastic option that top 401(k) plans offer. It gives employees the option to contribute after-tax today into their 401(k) account and then when they reach retirement age of 59 1/2, they can make withdrawals tax-free, earnings and all!

Here are three great reasons you’ll want the Roth option for you and your employees:

1. No income limits! Anyone can contribute to a Roth 401(k) up to the 401(k) contribution limit (that’s $16,500 in 2009) no matter how much you earn. This is much different than the Roth IRA which has $5K contribution limit and is restricted to those earning $120K or more.

2. Great way to better manage taxes (a tax diversification strategy). Especially appealing for younger employees and anyone who thinks their tax rate will be higher when they use their Roth savings in retirement than it is today. This could be due to your income growth and/or the government raising taxes over time prior to the time you’ll need to use your Roth savings.

3. There is no cost to make it a part of your 401(k) plan. It’s simply an option that employees can choose to use or not. You can even elect to put part of your contributions in the Roth and part on a tax-deferred basis.

To learn more details about the Roth option, simply read our guide.

]]> http://www.sharebuilder401k.com/news/post.aspx?postID=11 Wed, 14 Oct 2009 23:15:34 GMT http://www.sharebuilder401k.com/news/post.aspx?postID=10 It may seem confusing trying to figure out what sort of retirement plan is the best fit for your business. Yet when you compare a 401(k) to SEP and SIMPLE IRA options, the main plan options for businesses with less than 25 employees, it becomes a much easier decision.

401(k)s not only offer higher contribution limits, but also offer more flexibility in design to manage business costs, taxes, and enable penalty-free access to funds via a loan if an emergency arises before reaching retirement age (59 ½). A summary of important differences include:

	401(k)	SIMPLE IRA	SEP IRA
Who can contribute	Employee; Employer optional	Employee & Employer	Employer only; must contribute for all eligible employees
Max Employee Contribution	$16,500 w/$5,500 catch-up if over 50 years old	$11,500 w/$2,500 catch-up if over 50 years old	Not applicable
Employer Contributions	Optional, up to 25% of W-2 payroll with a $49K cap	Required match of 100% first 3% of participating employee contributions or 2% of all eligible employee salaries	Optional, but only way to fund; up to 25% of W-2 payroll with a $49K cap
Vesting Timing for Employer Contributions	Multi-year options or immediate	Immediate	Immediate
Access to Funds before age 59 ½	Penalty-free loans or 10% penalty for early withdrawal	25% penalty for withdrawing within first 2 years of participating; 10% thereafter	10% penalty for withdrawal before age 59 ½

Also the Roth option available with a 401(k) which has no income limitation is another advantage not available in the IRA options. As the cost for small business 401(k)s have dropped substantially, there aren't many reasons to consider anything else.

]]> http://www.sharebuilder401k.com/news/post.aspx?postID=10 Tue, 06 Oct 2009 04:03:41 GMT http://www.sharebuilder401k.com/news/post.aspx?postID=8 Many owners with less than 15 employees debate whether to get an individual IRA for themselves or a 401(k) for their entire business. When presented with the differences, most owners see how 401(k) advantages can make it a clear winner:

	401(k)	IRA
2009 Contribution Limit	$16,500	$5,000
Age 50+ Catch-up Amount	$5,500	$1,000
Roth Income Limit	None	$120K*
Penalty-free access	Yes, loan to self	No

* amount you can contribute starts phasing out at $105K

401(k) plans make it easy to save automatically through payroll deductions and enable optional profit sharing not available with an individual IRA. More important are the additional tax credits and deductions for 401(k) plans that can more than offset the cost of a plan.

Read our overview for more details on how a 401(k) can help.

]]> http://www.sharebuilder401k.com/news/post.aspx?postID=8 Thu, 01 Oct 2009 21:30:41 GMT http://www.sharebuilder401k.com/news/post.aspx?postID=7 Like any employee benefit, 401(k) plans do come with a cost to your business. 401(k) costs typically include a one-time setup charge to establish your plan and an ongoing administration fee to manage your account. These costs cover record-keeping, personal support from an account manager, participant calls, and product and service improvements.

The per-employee administration cost of retirement plans varies dramatically across the industry as most providers focus on serving large businesses and are not priced to serve businesses with less than 50 employees. The first step of getting a fair price is to know what a reasonable price is for administration:

• Self-employed (solo 401(k)) should pay less than $200 per year
• 2 to 15 employees firms ought to pay no more than $1,200 per year
• 16 to 50 employee businesses should cap around $1,800 per year

Also be aware of participant fees employees will pay from the money in their account. Read the Understanding 401(k) Costs guide or download our Cost Comparison sheet to learn the questions to ask, and the insights to get the best price for your business.

]]> http://www.sharebuilder401k.com/news/post.aspx?postID=7 Tue, 22 Sep 2009 20:51:12 GMT http://www.sharebuilder401k.com/news/post.aspx?postID=9 There is an important deadline coming up for small business owners that want to save the maximum amount on taxes this year.

These plans, called safe harbor 401(k)s, must be setup by October 1st each year to qualify. Our 2009 deadline is September 21st to ensure your plan is setup in time to meet the requirement.

By simply providing a small match to your employees, you can setup a safe harbor plan for your business. The 401(k) safe harbor enables owners of businesses with employees to contribute the maximum amount (otherwise restrictions may apply) in the current tax year without the additional administrative hassles that come along with satisfying “discrimination testing” for retirement plans.

Other 401(k) plan deadlines roll around in December each year (assuming your fiscal year follows a calendar year). These plan types include individual 401(k) plans for the self-employed, non-safe harbor 401(k)s for businesses with employees, and profit-sharing only plans.

Our 2009 deadline for these options is December 21st.

]]> http://www.sharebuilder401k.com/news/post.aspx?postID=9 Tue, 15 Sep 2009 05:16:15 GMT http://www.sharebuilder401k.com/news/post.aspx?postID=3 The ShareBuilder 401k investment philosophy is straightforward: enable 401(k) participants to focus on the areas they can control to work towards long-term success. The core fundamentals that drive our fund line-up selection include:
• Diversification of your money (assets) is critical – having all your eggs in one basket is a bad call
• It’s a long-term proposition – following short-term trends is not an investment strategy
• Costs matter – low-expense funds can help your money work harder

It’s why we chose to offer an all-ETF based offering in our 401(k) plans. ETFs are like index mutual funds in that they track the make-up of a market index like the S&P 500 but can be traded throughout the day like a stock. They offer low-expenses, a broad array of asset categories, and fee transparency. And when you consider the following, you can see why ETFs are a great fit for retirement plans:

1. Index mutual funds have historically beaten 70%+ of actively managed funds over time as detailed in the guide linked to below
2. Research indicates the key driver of fund performance is low-expenses and manager tenure
3. ETFs expense ratios are typically lower than even index mutual funds expense ratios
4. ETFs cover about all major market indices. They also cover specialty categories not typically in retirement plans like Treasury Inflation-Protected Securities (TIPs), a bond fund
5. While charging a transaction fee for ETF trades is common at most any retail brokerage firm, some 401(k) providers have eliminated this cost

To learn more about why indexing, and in particular, ETFs make sense for long-term investing, give this guide a read. We think you’ll be glad you did.

]]> http://www.sharebuilder401k.com/news/post.aspx?postID=3 Mon, 14 Sep 2009 22:05:20 GMT http://www.sharebuilder401k.com/news/post.aspx?postID=5 Imagine if there was a 401(k) alternative for small businesses that:
• Made saving the maximum without any restrictions easy
• Offered strong tax incentives
• Reduced IRS administrative hassles

Good news, there is and our deadline for this kind of plan for this calendar year is September 21st!

It’s called a Safe Harbor 401(k) plan. Safe Harbor plans allow business owners to contribute the maximum deferral amount ($16,500 in 2009) to their own account and automatically satisfy the IRS non-discrimination testing associated with other 401(k) plans. By providing a small “safe harbor” match, any employee including the owner can give the maximum to the plan. This match is what helps the business avoid the hassles of government discrimination testing. And the match will be tax deductible for your business.

To get more details about Safe Harbor, just download our guide. ]]> http://www.sharebuilder401k.com/news/post.aspx?postID=5 Tue, 01 Sep 2009 21:20:58 GMT http://www.sharebuilder401k.com/news/post.aspx?postID=6 Many small businesses have never taken the time to purchase a 401(k) for their company as they view the costs as too expensive. Yet, as the price of plans has fallen [typically in the $1,000 to $1,500 range for businesses of 2-15 employees – much less for solo 401(k)s] and due to the business and personal tax benefits for owners, 401(k) plans can pay for themselves.

If you’re starting a 401(k) for the first time and you have less than 100 employees, you will qualify for up to a $500 tax credit each of the first three years of your plan. That’s $1,500 over the first three years to offset set-up or administration charges to maintain your plan. To qualify for the credit, all your business needs is one participating employee, not including the owner, who earned less than $110,000 in 2008. Small businesses that choose to match their employees’ contributions can also deduct that amount as a business expense.

Now take into account the personal tax savings the owner receives who contributes the maximum of $16,500 in 2009. If the owner is in the 28% tax bracket, that is a tax savings of $4,620. Even paying for the employee match, the employer of a 10 person firm is often better off versus not having a plan at all.

Read our guide Lower Your Taxes with a 401(k) Plan for more insights including scenarios of owners who have a plan versus those that do not. You might just find it saves you a cool million for down the road! ]]> http://www.sharebuilder401k.com/news/post.aspx?postID=6 Thu, 27 Aug 2009 00:52:14 GMT http://www.sharebuilder401k.com/news/post.aspx?postID=1 Greetings and welcome! At ShareBuilder 401k, we have the great honor of serving thousands of businesses with 401(k) plans. Our vision is to simplify 401(k) plans so any business can have a plan. Right in line with our vision, we are introducing helpful posts today to give you straightforward perspective on all the ins and outs of retirement plans. Whether its price, funds, features, markets, important regulations, or how to help employees succeed, we hope to provide you with a clear understanding of what matters and how to address it. If you’d like to learn more about our background, just click here: http://www.sharebuilder401k.com/sharebuilder.aspx.

Wishing you great success!
Stuart (Who’s Stuart)

]]> http://www.sharebuilder401k.com/news/post.aspx?postID=1 Thu, 20 Aug 2009 23:10:56 GMT