Small Business Retirement Account Options

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PluggingAway
Posts: 1
Joined: Tue Jul 27, 2021 7:54 am

Small Business Retirement Account Options

Post by PluggingAway »

Hi all,

Long, long, long, long-time lurker, first time poster here and appreciate everything this board has done for me. Finally have some questions that I cant seem to find exact answers to through searching so here we are.

My wife started her own physical therapy business about 5 years ago. Once she got up and running, she opened an individual 401k with Vanguard as at the time she was a sole proprietor and only employee. However, a few months ago she made her first full-time hire and will not be able to use the i401k going forward. So here are some questions I have related to this:

1. In the middle term time horizon (next 10ish years), she will probably cap at about herself and 4-5 employees, a mix of a couple full-time therapists and some part-timers/receptionist/billing types. She would like to be able to open a new retirement account that she and her employees will be able to utilize. Any suggestions on what type of account that should be given the above information?

2. What happens to her i401k? She hasnt contributed anything to it this year, knowing that she no longer can because she has an employee now, but what does she do with this account? Is it something that stays open now and can no longer make contributions going forward? Or will she have to, or should she, roll the balance into whatever new account she opens?

Anything that I may be missing? Please feel free to ask any questions I may be able to answer and again, really appreciate everything this board does. Thanks in advance!
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David Jay
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Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Small Business Retirement Account Options

Post by David Jay »

Welcome to the forum!

A SIMPLE IRA can be an employer sponsored for a small number of employees: https://www.bogleheads.org/wiki/SIMPLE_IRA

Her 401K can continue to exist (and grow) without new contributions. Or it can be rolled over into a traditional IRA as that will eliminate ongoing 401K costs, if any.
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SuzBanyan
Posts: 2015
Joined: Thu Jun 02, 2016 11:20 am

Re: Small Business Retirement Account Options

Post by SuzBanyan »

Your wife can certainly continue her 401k plan even though she has employees but she will have to transition to a standard 401k plan. That transition probably needed to happen at the time of the new hire, because the Solo 401k plan probably has no eligibility requirements. So the new hire was eligible to participate when hired.

First step then is to fix this by transitioning to regular 401k and taking whatever steps may be necessary to correct the failure to give those employees the opportunity to participate in the plan. This is discussed a little here: https://www.irahelp.com/forum-post/2561 ... gular-401k

The corrective action is discussed here: https://www.irs.gov/retirement-plans/40 ... -employees

Once that has been fixed, your wife can look at future retirement plans, but it is likely nothing can go into effect until 2022 because she can’t have a SIMPLE or SEP for 2021 as she has a 401k plan for that year. After making the needed correction, she may feel like a 401k expert and decide to continue was that plan.
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Lee_WSP
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Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Small Business Retirement Account Options

Post by Lee_WSP »

You have three popular options when one employees:

SIMPLE IRA
SEP IRA
401k

The simple IRA is simple. It's a defined contribution plan where employees (including yourself) contribute a percentage of their paycheck to their own individual plans. The employer either matches it up to 3% of salary or automatically gives all eligible employees a 2% salary match.

The SEP is an employer sponsored plan whereby the employer contributes up to XX% (I think it's 20%) of an employees salary towards an individual IRA. Not a great idea if you don't want to all eligible employees raises. But, you can do it for the first few years before employees become eligible.

The downside to the 401k is costs. Otherwise it's the better plan. IMO.
Skydriver
Posts: 7
Joined: Wed Jul 28, 2021 9:37 pm

Re: Small Business Retirement Account Options

Post by Skydriver »

There are some lower cost 401(k) providers that are worth considering. I moved my company from a Simple IRA with Fidelity to a 401(k) with Guideline.

The Simple Plan with Fidelity had minimal costs as the plan sponsor. With Guideline’s 401(k)
plan, we’re paying a $49 per month base fee plus $8 a month for each participant. We were able to do a Safe Harbor Plan with a Roth 401(k) option. The fund choices are primarily Vanguard funds. Both my employees and I have been very happy with Guideline.
Last edited by Skydriver on Wed Jul 28, 2021 10:21 pm, edited 1 time in total.
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