The end of the year is coming, which means it's the right time for a financial checkup. No matter how big or small your business is, this can be an overwhelming time. You may be stressing about meeting your end-of-year goals and budgeting for the upcoming year, all while planning for and enjoying the holiday season.
But as a plan sponsor, it's important to review your 401(k) plan, to verify that your current plan is still working for you and your employees. For example, you'll need to remind employees about their retirement benefits, collect your records, and review what's working and what could be tweaked.
Here are 8 tips that 401(k) plan sponsors should consider during their end-of-year plan checkup:
1. Notify and remind your employees about their retirement benefits
Are you rolling out a new plan for the first time that's live on January 1, 2027? If so, tell your teams all about it now and let them know how and where they can participate.
For existing plans, remind your employees about the retirement benefits you're providing for them. In general, 2026 employee contributions to an employer-sponsored retirement plan must be made by December 31. For 2026, the 401(k) employee contribution limit is $24,500 for employees ($32,500 if they are age 50 or over, or $35,750 for ages 60-63) and a combined $72,000 for employee and employer contributions ($83,250 for ages 60-63).¹ Note that this differs from an IRA, which allows carryback contributions after the calendar year has ended but before taxes for that year have been filed.
Educate your team about contributing as much as possible within those limits. Possibly, encourage employees to meet their employer match, too, since it's like leaving part of their compensation on the table if it's right for their situation. Tell them about any contributions you've made as their employer. After all, your contributions are helping them grow their retirement savings faster.
Also, think about pointing out to your team that contributing more to their retirement plan can help them reduce their taxable income.² Or it adds more money into their Roth 401(k) balance,³ where the earnings are tax-free on withdrawal after specific requirements are met.
2. Audit employee 401(k) information
Use this time to review your employee information, including information gaps or changes. For example, you may need to update employees' mailing and email addresses, phone numbers, and plan statuses for new or former employees.
Reviewing retirement plan participant accounts for missing beneficiary designations is also smart. Adding or changing a beneficiary requires an employee to provide the beneficiary's name, date of birth, and social security number, if available.
3. Send required 401(k) plan information
As a plan sponsor, you're also required to provide notices to employees about their plans, including:
Participant fee disclosure information: On an annual basis, plans are required to give participants and beneficiaries plan administration information, such as fees that might be deducted, and a comparative chart showing comprehensive investment-related information about the plan's investment alternatives.
Participant benefit statements: Defined contribution plans must provide Individual Benefit Statements (IBS) which include information on the benefits that a participant has earned and what their vested amounts are. For 401(k) plans where participants are allowed to direct the investment of their accounts, an IBS must be provided quarterly. A participant can also request a statement be provided at any time, but no more than once per 12 month period.
Summary annual report: Plan administrators must provide a Summary Annual Report (SAR), which summarizes the information reported on Form 5500, including administrative expenses incurred, the benefits paid to plan participants and beneficiaries, and the total value of the plan assets. The SAR is due 9 months after the end of the plan year.
Also, depending on the type of 401(k) you offer, you may have to provide additional annual notices by early December, such as:
Safe harbor 401(k) notice
Automatic enrollment notice
While this can seem overwhelming, it doesn't have to be. With a Gusto 401(k), we can manage this for you and provide notices to the participants in your qualified retirement plan where you provide email addresses.
4. Make sure you've deposited 401(k) contributions by the required deadlines
Deadlines are the next thing to consider. Timely deposit of employee contributions are a key fiduciary duty of the plan sponsor. Late deferrals could be problematic, including resulting in an audit or additional taxes. Your retirement plan's Form 5500, a federal compliance tool, asks if there were any late deposits of participant deferrals for the year. Remember that the Department of Labor (DOL) requires employee contributions and loan repayments to be deposited into the plan as soon as they can be reasonably separated from the employer's general assets.
The DOL has a 7-business-day safe harbor rule for small plans with fewer than 100 participants. That provision says if the employees' contributions and loan repayments are deposited into the plan by the 7th business day following payroll, they are considered on time, even if the employer could have made the deposit sooner.
For larger plans, there is a rule that amounts must be deposited no later than the 15th business day of the following month. However, this is not a true deadline, but simply means that there is no case where amounts deposited after that time frame are not late.
Rules like this can feel overwhelming, but Gusto Retirement handles these matters so you don't have to. While you focus on managing and growing your business and keeping your employees engaged, we manage most of the administrative and regulatory stuff, including processing transactions, executing trades, safeguarding plan assets, and more.
5. Collect your plan's documents and records
During your end-of-year checkup, you'll need to gather your plan's documents. Under federal law, the Employee Retirement Income Security Act (ERISA), employers must keep records for at least 6 years.
Plan sponsors must keep the detailed following record: summary plan descriptions, participant notices and documentation of the dates and method of delivery, participant elections, including deferral and investment elections, and payroll records and employment history.
They must also provide nondiscrimination test results, copies of Form 5500, including attachments, and participant distribution forms, including special tax notices, election forms, and 1099-R forms. Documents such as the plan documents, associated amendments, and IRS determination letters must be kept for the lifetime of the plan and at least 6 years past the plan's termination date.
These are just some of the required recordkeeping involved with offering a 401(k). But businesses who offer a retirement benefit with Gusto Retirement don't have to stress about maintaining these records. We collect and keep this documentation for the time you are with Gusto Retirement, including government filings like Form 5500, compliance testing, and recordkeeping for plan balances, transactions, and deferrals.⁴
6. Consider profit sharing
Instead of giving employees a traditional end-of-year cash bonus, consider providing a profit sharing contribution, which can boost their retirement savings without increasing their annual taxable income. Employers benefit too with tax deductions, and these contributions are not subject to Social Security or Medicare withholding.
While its name implies sharing profits, profit sharing is just a pre-tax contribution employers make to their employees' retirement accounts after the end of the year. The plan is a flexible, discretionary way for employers to reward employees with additional retirement contributions.
Profit-sharing contributions have many employer benefits, such as tax-deductible contributions, typically for the previous tax year.² Other benefits include:
There's no minimum amount required for profit-sharing contributions.
Plan sponsors can look at their finances before deciding whether to contribute or how much to contribute. Employers can choose to contribute even if their year isn't profitable.
Profit sharing allows employers to contribute to all employees, even those who don't otherwise contribute to the retirement account.
Offering profit sharing can improve employee recruitment. With vesting schedules, employees may stay longer at a company to maximize employer contributions.
With a Gusto 401(k), offering profit sharing can be easy and less of an admin hassle. We streamline the profit-sharing process, making it easy for plans to execute. Get started by checking our profit-sharing allocation formula.
Gusto offers three kinds of profit sharing: pro-rata, flat-dollar (same-dollar), and new comparability. Under a pro-rata plan, a fixed contribution amount is allocated to employees in equal percentages based on each employee’s relative compensation. With the flat-dollar formula, every employee gets the same contribution amount. With a new comparability plan, an employer can allocate different contribution amounts to different employees by defining groups in the plan documents; cross-testing is then used to verify that the varying contributions meet nondiscrimination requirements. Pro-rata and flat-dollar profit-sharing formulas are available for Gusto Core and Enterprise plans. New comparability is available for Enterprise plans and, for an additional fee, for Core plans.⁵ Profit sharing is not available for Starter plans.
7. Review plan fees you and your employees have paid this year
Many people set a goal to budget their money better in the new year. So why can't your company's retirement benefit budget be better, too?
Better budgeting starts by understanding the fees you pay. Fees are a part of all retirement benefit plans. However, a government report shows 40% of 401(k) plan participants don't understand the fee information of their plan. Gusto Retirement is committed to keeping fees low. Unfortunately, many 401(k) providers charge employers and plan participants hidden fees, which can be costly. Investment, administrative, and service fees can add up fast, and often, most employees don't know what the fees are for, even though they pay them.
8. Review your retirement plan to see if it still fits your current needs
Your end-of-year financial checkup can be the time to assess your retirement benefit and determine if it's still a fit for your company and your employees. Providing a competitive retirement offering is often essential to attracting and retaining employees. But to stay competitive with your offerings, you may need to routinely reassess your 401(k) plan and provider.
Every year, you should consider grading your 401(k) provider by looking at measurable criteria such as:
Plan costs, including fees
Participant engagement
Investment performance
Fiduciary and compliance support
Employee and administration services
Replace your 401(k) provider if they're not meeting your needs. Are the plans flexible? Is the provider responsive to your questions? Are they using easy-to-use tools for participants to manage their investments?
At Gusto Retirement, we offer a quick plan setup, provide an all-in-one experience,⁶ and have powerful technology to make setting up and managing 401(k) plans easy and efficient.
Beginning a 401(k) in the new year can help in both maximizing contributions and mitigating compliance risks.
This content is for informational purposes only and is not intended to be taken as tax advice. Please contact a tax professional for further information.
FAQs
What is the deadline for 401(k) contributions at year-end?
Employee contributions to an employer-sponsored 401(k) plan must be made by December 31 of the calendar year. This differs from IRAs, which allow carryback contributions after the calendar year ends but before personal income taxes are filed.
How long must plan sponsors keep 401(k) records?
Under ERISA, employers must keep most records for at least 6 years. However, plan documents, amendments, and IRS determination letters must be kept for the lifetime of the plan and at least 6 years past termination.
What are the benefits of profit sharing contributions for employers?
Profit sharing contributions are tax-deductible, not subject to Social Security or Medicare withholding, and offer flexibility with no minimum contribution required. These contributions can help with employee recruitment, and with vesting schedules, they can also help with retention.
Disclosures
¹ Varies by age and may be adjusted annually to account for IRS cost-of-living adjustments. Learn more here.
² This content is for informational purposes only and is not intended to be taken as tax advice. Please contact a tax professional for further information.
³ Roth distributions will be tax-free if the following conditions are met: (a) Roth contributions are always distributed tax-free. The earnings on Roth contributions will be tax-free typically if the following conditions are met: (a) you're either over age 59 ½, disabled, or have died AND (b) it has been 5 years since your first Roth contribution under the current plan. Please consult a qualified financial advisor or tax professional to determine what is applicable to your financial situation.
⁴ All plans of related entities must be administered by Gusto Retirement in order to provide compliance testing.
⁵ For Core plans, new comparability may incur a one time additional fee. For more information on our fees, see https://my.guideline.com/agreements/fees.
⁶ Investment advisory services for Gusto's 401(k) (when 3(38) fiduciary services are appointed) and SEP IRA/IRA products are offered by Gusto Investment Services, LLC, an affiliated SEC-registered investment adviser. 3(16) fiduciary services are offered by its affiliate, Gusto Retirement Services, LLC, and only made available to clients who use the integration services available through Gusto's payroll services.
The information provided herein is general in nature and is for informational purposes only. It should not be used as a substitute for specific tax advice that considers all relevant facts and circumstances. Gusto makes no representations or guarantees with regard to investment performance as investing involves risk and investments may lose value. Clients should consult a qualified investment or tax professional to determine the appropriate strategy for them.
