A Modern Approach to 401(k)s: Enrollment, Pricing, and Tax Credits

Gusto Editors

Are your small business clients struggling to implement a 401(k) plan?

As an accountant, you’re in an optimal position to advise your small business clients through the process of integrating an employee retirement plan. One simple and affordable solution to incorporating a retirement plan is by signing up with Guideline through Gusto. Guideline offers cost-effective 401(k) plans that can streamline the process of onboarding and managing small business employee retirement plans. 

Gusto, along with our partners at CPA Academy, presented a webinar all about Guideline and 401(k)s titled, “Private Sector 401(k) vs. State-Sponsored IRA: A Guide for Accountants.” The presentation featured the 401(k) expertise of Nicolle Wilson, director of the retirement consulting department at Guideline. You can watch the full webinar here

In this article, you’ll learn all about essential 401(k) options available for your small business clients, and you’ll also discover critical tax benefits that will help your clients implement a 401(k) plan. 

401(k) employee benefits packages

Many states now require businesses to implement retirement plans for their employees, such as a 401(k) or a state-sponsored Roth IRA. 401(k)s are an excellent option for businesses because they allow employees to put more money towards retirement, and 401(k)s also offer employers great tax benefits. 

When businesses sign up for a 401(k) plan through a traditional provider, multiple companies become involved in onboarding and managing employee plans, which often makes the process confusing and costly: 

With a typical established 401(k) provider, there could be multiple companies involved in setting up and maintaining your plan. … As a result, the plans can be confusing. Who do you contact and for what? … A lot of work ends up falling on the employer in the end, and they can be expensive. Everybody involved has to get paid, and the more people involved, … the more you’re going to pay.

Nicolle Wilson

When multiple companies start and manage 401(k) plans, the process becomes confusing for employers and more expensive. In the last half-decade, companies have emerged to streamline the process and make it easier and more cost-efficient for employers and employees. 

Gusto offers fully integrated 401(k) solutions through our partnership with Guideline. They provide automated processes that simplify 401(k) onboarding and management and reduces the number of parties involved:

Accountants reviewing tax benefits with 40(K)

At Guideline, we’ve built our own automated record-keeping system, … which enables us to take on … functions in-house. This allows us to get rid of the middlemen and also accept most of the fiduciary liability as the 3(16) administrator and 3(38) investment manager. They also tend to build and automate other essential features that you would generally have to pay extra for, like non-discrimination testing and filing 5500s.

Nicolle Wilson

Guideline streamlines the 401(k) process through automation, and they offer administration solutions that make plans easier to manage. Additionally, Guideline simplifies the employee onboarding process by using robo-advisory services: 

Employees may go through an automated quiz online asking about when they want to retire, what their risk tolerance is, and additional questions about their financial situation. The robo-advisor will recommend an investment portfolio or investment choices and, potentially, how much you contribute into your account. What was generally a confusing, complicated process for a lot of employees is now really easy to manage.

Nicolle Wilson

Implementing a 401(k) solution can often be a complex and pricey process, but small businesses can use Guideline through Gusto to expedite the 401(k) onboarding process and make plan management easy. 

Cost-efficient 401(k) enrollment 

In addition to streamlining 401(k) onboarding and management, Guideline also offers more affordable 401(k) solutions. Traditional 401(k) providers charge pricey fees for employees of smaller businesses:

Established 401(k) providers tend to get paid through [Assets Under Management] (AUM fees), which take from employee accounts in order to pay everyone involved in managing the 401(k) plan. … The more money in a plan, the more valuable that client is going to be to the 401(k) provider. They charge more for smaller plans … to make it even to those larger plans so that [it will] be more worth their while.  

Nicolle Wilson

Many 401(k) providers charge small business employees exorbitant fees because small businesses’ 401(k) plans are not as lucrative as larger companies. Small businesses can now get 401(k) plans without paying more than larger companies. When your small business clients implement 401(k) plans through Guideline, they can expect to pay less in investment fees: 

Prices are going to be lower, especially when it comes to investment fees. It used to be that small business employees might be paying 2% out of their accounts to providers every year. Now, with these new players, they’re paying … the same as large-corporation employees, … [which is around] 0.5%, or 50 basis points, or even less.

Nicolle Wilson

In addition to small businesses paying lower investment fees, Guideline also enables employees to pay less money in participant fees. Guideline charges only a tenth of the amount that other 401(k) providers charge: 

If you choose to be invested in one of our managed portfolios, you can pay an average of 0.15% a year. … In contrast, the average small plan fee is 1.68%. … With Guideline, you are paying less than a tenth of the cost of the traditional provider. Your savings every year will grow as your account grows. Those savings will stay in your account and compound over all the years you’re investing, which also allows for an even bigger nest egg during retirement.

Nicolle Wilson

When your small business clients use Guideline through Gusto for their 401(k) needs, they can expect to pay less in investment and participation fees, which allows them to save money and empower their employees to invest more of their income towards retirement. 

Employee seeing how much tax benefit she receives from her 401(K)

401(k) tax benefits

Whether your small business clients choose to onboard a 401(k) plan through Guideline or a different company, they can gain lucrative tax credits for onboarding and management fees. 

One tax credit your small business clients should be aware of is the Retirement Plan Startup Costs credit. Nicolle outlined the requirements for this credit:

Employers are eligible to receive this credit if they are setting up a new retirement plan, have 100 or fewer employees who made at least $5,000 for the preceding year, … have at least one NHCE or non-highly compensated employee as a plan participant, and they didn’t sponsor a retirement plan in the three years before claiming this credit. 

Nicolle Wilson

Those who meet the Retirement Plan Startup Costs requirements are eligible for significant financial assistance. Congress also upgraded the credit in 2019 through the Setting Every Community Up for Retirement (SECURE) Act

What the SECURE Act changed is really just the amount of the credit. It used to be capped at $500 each year for three years max. Now, it’s been increased to the greater of $500 or the lesser of $250 for each NHCE or $5,000. … Previously, you could get $1,500 max in tax credits over three years, but that maximum has now increased to $15,000, which really could be a huge deal to some businesses”

Nicolle Wilson

The SECURE Act of 2019 increased the credit amount a business can receive for implementing a 401(k) plan. 

In addition to upgrading the Retirement Plan Startup Costs credit, the SECURE Act also introduced the auto-enrollment tax credit, which can save small businesses more money toward expenses and startup costs:

This new credit is given to small businesses that also add an eligible automatic contribution arrangement or EACA to a 401(k) plan. … The credit’s a flat $500 per year for up to three years. The great thing about this credit is that it is not limited to plan expenses, which means it can be layered on top of the startup credit. This gives a small business the opportunity to get an additional $1,500 in total tax credits.

Nicolle Wilson

By utilizing the available tax credits, small businesses can earn up to $16,500 in credits over the course of three years for implementing a 401(k) plan. The Secure Act also provides additional potential credits for Employer contributions to the 401(k) plan.

Figuring out the amount of money your small business clients need for incorporating a 401(k) can be challenging. It involves calculating startup and management costs and keeping track of the available tax credits, which may seem like a daunting task. Fortunately, Guideline features a tax calculator that helps small businesses determine the net cost of starting their 401(k) plans. Because of their affordable plans and assistance with tax credits, Guideline has even offered some small businesses 401(k) plans for free after incorporating tax credits. 

Additionally, Gusto offers a free 401(k) tax credit service to customers offering 401(k) plans via Guideline to help assess whether they qualify and generate the required tax form in minutes.

Learn more about 401(k)s

Implementing a 401(k) plan can often be a complicated process for small businesses. When your small business clients use Guideline through Gusto, they can streamline the process of incorporating and managing a 401(k) plan for significantly less money. Guideline’s automated processes and assistance can greatly reduce the amount of investment and participation costs that your clients pay. Additionally, your eligible small business clients can gain helpful tax credits that can further reduce the price of 401(k) startup costs and plan expenses. 

If you want to learn more about 401(k)s and advising your clients through employee retirement plans, read Part One and Part Two of this webinar article series. You can also watch the entire webinar here.

Are you looking for even more ways to assist your small business clients? Consider partnering with Gusto. Gusto provides invaluable integrated softwares, including Guideline, that can help your firm and your small business clients. When you partner with Gusto, your small business clients can access Guideline with no setup fees. The guideline also syncs with Gusto payroll so that employees automatically have contributions deducted from their paychecks. If you want to learn more about how Gusto can help your small business clients, visit our Gusto for accountants page

Gusto Editors Gusto Editors, contributing authors on Gusto, provide actionable tips and expert advice on HR and payroll for successful business management.
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