A 401(k) plan is a retirement savings plan sponsored by an employer. It allows employees to save and invest a piece of their paycheck toward retirement. “Traditional” salary deferral contributions are made pre-tax and reduce the amount of a person’s income subject to taxes. Income taxes are paid as funds are distributed from the 401(k) plan. Penalties may apply to distributions taken before reaching retirement age. “Roth” salary deferral contributions are made after taxes but are not taxes upon distribution at retirement.

In both cases, 401(k) contributions grow tax-deferred until withdrawn. Likewise, employer “matching” or “profit sharing” contributions also grow without any current income taxes. This highly tax-favored treatment of 401(k) plans is the reason that they constitute the cornerstone of most people’s retirement planning.

Offering a comprehensive benefits package, including retirement savings, is crucial for orthodontic practices to remain competitive as employers in the current labor market. With nearly 80% of orthodontic practices currently reporting a shortage in applicants, having a highly visible company sponsored retirement plan has become crucial for staff recruiting and retention.

The short answer is no. To encourage businesses to set up or maintain retirement savings plans, the U.S. government offers very generous tax credits that can offset most, if not all, of the employer expenses in the first several years of the plan. Moreover, employers who offer and match employee salary deferral contributions to 401(k) plans can continue to benefit from several additional tax advantages, which reduce their income tax liability year-after-year.

  • Startup Tax Credits: For small businesses initiating a new retirement plan, the SECURE 2.0 Act provides substantial tax credits. Specifically, businesses with up to 50 employees can receive a tax credit covering 100% of the plan’s startup costs – up to $5,000 per year – for the first three years, potentially totaling up to $15,000. This change is an increase from the previous 50% credit provided by the original SECURE Act. The intent is to significantly lower the financial barrier to establishing a retirement plan for small businesses.
  • Employer Contribution Tax Credit: Beyond the startup costs, there’s also a new employer contribution tax credit introduced by SECURE 2.0. For the first five years of the plan, this credit is for businesses with up to 100 employees, offering a diminishing percentage of the amount contributed by the employer for each employee – up to $1,000 annually per employee. The credit begins at 100% for the first and second years and gradually reduces to 25% by the fifth year. This credit aims to incentivize employers to contribute to their employees’ retirement savings directly.
  • Automatic Enrollment Tax Credits: The SECURE 2.0 Act mandates automatic enrollment for new retirement plans established after 2024. Employees will then have to “opt-out” actively rather than “opt-in.” The emphasis is on increasing employee participation rates, which has proven to be instrumental in employees reaching their retirement objectives.

As always, check with your tax professional for the most current and accurate information regarding these potential tax benefits.

Administering a 401(k) plan for a business can be perceived as complex and time-consuming, particularly for small practices without dedicated HR departments. However, advancements in financial technology, regulatory support, and the availability of professional assistance have made it increasingly easy for employers of all sizes to offer 401(k) plans.

Perfect401(k) leverages technology to streamline the setup and ongoing administration of retirement plans, offering flexible payroll integration options, easy onboarding for employees, and digital management of contributions and investments. This advanced technology reduces the workload for employers and simplifies the process of enrollment, contribution transmittals, and compliance reporting. Our extensive support services, including access to financial advisors, an AAO member dedicated Care Team, and educational resources for both employers and employees, will make having a 401(k) for your practice a breeze.

Setting up a 401(k) plan for your practice is much simpler than it might seem, thanks to a variety of factors that streamline the process. Here’s a breakdown of what you can expect:

Step 1: Contact Us

To start, all it takes is a 10-minute phone call. One of our New Business Team Representatives will welcome you to the plan onboarding process and ask you a few basic questions about your company. Then, we will send you a Plan Questionnaire where, with our assistance, you will choose your plan’s features and designate your plan’s trustees.

Step 2: Create Your Plan

Next, you will receive a Plan Sponsor Applications Package, which will establish your account with Charles Schwab Bank (where the plan’s assets will be held). After you review your new Perfect401(k) plan’s provisions, you will sign the final plan documents. Your representatives at Perfect401(k) will take it from there!

Step 3: Start Saving!

Our AAO CARE Team will host a webcast or visit your office(s) (travel permitting) to teach your employees about 401(k) plans and how to enroll online. We will also provide training to plan administrators and work directly with your current plan custodian to transfer all plan assets to Schwab as the new plan custodian. All that’s left is for you or your payroll provider to begin making salary deferral contributions. Welcome to Perfect401(k)!

Call us at (877) 836-1993  (M-F from 9am-9pm EST)

Perfect401(k) offers Low-to-No employer cost 401(k) solutions with premium features and exceptional service – including hassle-free administration, a value guarantee, and a suite of features such as Roth, Safe Harbor, Auto-Enrollment, and Brokerage-Window accounts, at no extra cost.

Yes! We offer many customization options, including choice of investments, several plan design options, and various communication strategies for your employees.

You can start by requesting an instant pricing proposal on this Perfect401(k) website that you can immediately view and download. Next, either call us with your questions or use our online scheduler to request a presentation or to schedule your practice’s 401(k) plan setup and onboarding.

Yes, Perfect401(k) assists businesses to easily switch from their current plan providers to a Perfect401(k) plan. With your permission, we can work directly with your current plan providers so that you don’t even have to be involved.

Perfect401(k) conducts annual compliance testing, prepares and files the Department of Labor Form 5500, acts as an ERISA 3(38) fiduciary designee to the plan, and offers a comprehensive Good Governance solution to help meet your plan’s regulatory requirements.

Perfect401(k) offers a range of investment options for all of our plans, including brokerage-window accounts, a curated list of low-cost mutual fund options, and four “Model Portfolios” managed by investment professionals, providing a hands-off approach for plan participants who prefer professional management of their retirement savings.

Rare in the industry, participant employees have more control over their expenses, paying only for the investment services they desire.

A brokerage-window account, available as part of our “Participant Self-Managed Profile,” is an option that allows participants to invest in a wider range of investments than those typically available in the plan’s standard investment lineup.

This option is provided at no additional cost and gives participants access to thousands of stock, bonds and ETFs traded on the NYSE and NASDAQ.

Charles Schwab & Co., Inc. and Charles Schwab Trust Bank are the exclusive plan custodians for all Perfect401(k) retirement plans, ensuring the administration and safekeeping of retirement plan assets. As one of the largest group of financial services firms globally, Charles Schwab provides a trusted and secure platform for your retirement plan assets, along with access to a wide range of investment options.

Retirement plans typically allow for both employee and employer contributions. Employee contributions are often made via payroll salary deferrals either before or after tax, while employer contributions are made in the form of “matching” for employee salary deferrals, or as “profit sharing” contributions made to all eligible employees. These employer contributions may be either mandatory or elective depending upon the type and features of retirement plan you choose.

Choosing the right plan depends upon a range of factors, including the size of your business, the level of contributions you wish to make, and the financial goals of you and your employees. It is noteworthy, however, that 401(k) plans are the only employer-sponsored retirement plan where no employer contributions are required. Speak with us today and we will help you to make the best choice.

As your plan provider, Perfect401(k) will manage all aspects of your plan’s annual compliance testing.
Retirement plan compliance testing is a set of specific tests that 401(k) plans must undergo annually to ensure they adhere to the Internal Revenue Service (IRS) and Department of Labor (DOL) regulations. These tests are designed to verify that the plans do not disproportionately favor highly compensated employees (HCEs) over non-highly compensated employees (NHCEs), among other requirements. The main purpose of compliance testing is to maintain the tax-qualified status of the retirement plan, which offers tax advantages to both employers and employees.
Some of the key tests involved in retirement plan compliance testing include:
  1. ADP (Actual Deferral Percentage) and ACP (Actual Contribution Percentage) Tests: These tests compare the average deferral percentages of HCEs to those of NHCEs. The aim is to ensure that the contributions made by or on behalf of HCEs are not disproportionately higher than those made for NHCEs.
  2. Top-Heavy Test: This test determines whether the key employees’ total account balances are more than 60% of the entire plan’s assets. A plan is considered top-heavy if key employees hold a significant portion of the plan’s assets, triggering additional requirements such as minimum contributions for non-key employees.
  3. Coverage Test (IRC Section 410(b)): This test ensures that a sufficient number of NHCEs are covered by the plan. It’s designed to prevent a plan from exclusively or predominantly benefiting HCEs or key employees.
  4. Nondiscrimination Tests: These tests are meant to ensure that the plan’s benefits, rights, and features are provided in a manner that does not discriminate in favor of HCEs or against NHCEs.

Failing to meet the requirements of these tests can result in corrective actions such as refunding contributions to HCEs to balance the contributions percentages or making additional contributions for NHCEs. Perfect401(k) is an expert not only at performing this required testing but at designing the plan documents to avoid any testing issues.

A Safe Harbor plan is a type of 401(k) plan that automatically satisfies the nondiscrimination tests used in traditional 401(k) plans, such as the Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) tests. By adopting a Safe Harbor plan, employers can bypass these tests, making it easier to pass compliance requirements set by the IRS.
The main characteristic of a Safe Harbor plan is that the employer makes minimum contributions to their employees’ accounts. These contributions may be in one or more forms:
  1. Matching Contributions: The employer matches the employees’ salary deferral contributions up to a certain percentage of their salary. A common formula for Safe Harbor matching contributions is 100% of the first 3% of employees’ compensation deferred plus a 50% match of the next 2% of deferred compensation.
  2. Non-Elective Contributions: The employer contributes a fixed percentage (typically at least 3%) of compensation to all eligible employees’ accounts, regardless of whether the employee makes their own salary deferral contributions to the 401(k) plan.

The primary benefits of a Safe Harbor plan include:

  1. Simplifying Plan Administration: By avoiding the ADP and ACP tests, the plan administration becomes less complicated.
  2. Allowing Higher Contributions for All Employees: Safe Harbor plans enable highly compensated employees (HCEs) to contribute the maximum annual deferral amount to their 401(k) without the limitations that might be triggered by failing the nondiscrimination tests – such as a return of a portion of salary deferral contributions that had been made by HCEs during that year.
  3. Encouraging Plan Participation: The mandatory employer contributions (either matching or non-elective) can incentivize employees to participate in the plan and save for retirement.

Safe Harbor plans can be an excellent choice for businesses that consistently fail nondiscrimination tests or want to maximize contributions for owners and highly compensated employees without the constraints of traditional 401(k) testing requirements.

Vesting refers to the process by which an employee earns ownership of employer contributions to their 401(k) retirement account over time. Depending upon the type and features of plan you choose, vesting may be immediate or extend over several years.

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