One Less Furrowed Brow for 401k Plan Sponsors

We got a sneak preview of the Dept of Labor's preliminary guidance on setting up 401k default investment options.

Under the guidance--which is subject to change--401k fiduciaries are now given a safe harbor on 401k investment management decisions and any breach that is "the direct and necessary result of investing a participant or beneficiary's account" in a default investment."

Investment managers and advisers, on the other hand, are solely responsible for any decisions they make with regard to the 401k investments or any resulting losses and do not get the same kind of relief.

In order to qualify for that 401k safe harbor, however, 401k fiduciaries must allow participants

1. the opportunity to move their investments into an alternate account
2. provide advance notice of the default investment and
3. invest the assets in a certain kind of qualified default investment.

Moreover, that default investment, which can be a lifecycle fund or a managed account, or other fund, must limit the presence of employer stock in the portfolio, as well as allow funds to be transferred.

The 401k fiduciary responsibility associated with selecting funds for the investment options in a 401k plan has now been tempered with this new preliminary safe harbor.

One less furrowed brow for plan sponsors.

10 Steps To Save Your Retirement

Many of the brightest and hardest-working marketing and advertising people in the country are obsessed with getting you to spend money and, if necessary, to go into debt to do so. Absolutely all the media that reach you every day are designed to get you to spend money. In order to save money in this environment, you will need determination to withstand the constant pressures to spend now.

What is it that separates those who are successful from those who are not?

Successful individuals have a strong personal vision of what they want and why they want it. That vision gives them the strength to stick to their strategies even when doing so is uncomfortable. It gives them the determination to persist when they are discouraged. This is the same characteristic of women entrepreneurs and is the reason their new, small businesses are successful.

The 401k Plan
Today, the 401(k) plan has become the main investment vehicle for working women to save for retirement. But many do not take full advantage of their plan, and this could leave them with a lot less at retirement.
Here are some steps we believe you can take to improve and eliminate any retirement worries about whether or not your retirement will be pleasurable or public charity; or whether you will have all the free time to spend with your family or friends.

1. 
   Increase your contributions to the maximum that you can manage. Many women contribute just enough to take advantage of their employers matching contributions, and then they stop. By adding more to your account, beyond the matching contributions, youll end up with more in retirement.
2. 
   Invest at the start of each year instead of taking a little bit out of each paycheck. Nothing in the law says you have to invest in a 401(k) plan a little at a time, from each paycheck. By investing early, you’ll put your money to work sooner for your benefit.
3. 
   A few years ago it was reported that more than 30 percent of the money in 401(k) plans was invested in money-market funds or similar accounts. For investors nearing retirement, that may be appropriate. But most workers in their 40s and 50s need growth in their retirement investments. Put more of your investment fund in equities and less in money-market funds.
4. 
   Research indicates that over long periods of time, small-company stocks outperform large-company stocks. Since 1926, In the equity part of your portfolio, shift some of your money into funds that invest in small companies. Do not put your entire equity portfolio in small-company stocks. But consider investing at least 25 percent of your U.S. equity investments in that fund.
5. 
   Numerous studies have shown that value stocks outperform growth stocks. According to data going back to 1964, large U.S. value companies had a compound rate of return of 15.1 percent vs. only 11.4 percent for large U.S. growth companies. Among small U.S. companies, the difference was even more striking: a compound return of 17.4 percent for the value stocks vs. 12.1 percent for the growth stocks. Do not put your entire equity portfolio into value stocks. But if there is a value fund available to you, consider investing at least 25 percent of your U.S. equity investments in that fund.
6. 
   Rebalance your portfolio once a year. Your asset allocation plan calls for a certain percentage to be invested in each of several kinds of assets. Rebalancing restores your asset balance and allows for the possibility that last years losers may be this years gainers. Diluting your diversification actually increases risk in your portfolio over time, which is a result that is just the opposite of what most investors want.
7. 
   Without compromising proper asset allocation– use the funds in your plan that have the lowest operating expenses. Choose funds with low turnover in their portfolios.
8. 
   Do not borrow or make early withdrawals from your 401(k) unless that is the only way to respond to a life-threatening emergency. Furthermore, if you take an early withdrawal before you are 59.5 years old, your withdrawals will be subject to a 10 percent tax penalty (in addition to regular taxes) unless you are disabled. Just dont do it.
9. 
   If you leave your job, you will get a chance to roll over your 401(k) into an IRA. Take that chance. In an IRA, you have the same tax deferral as a 401(k), and you will have the flexibility to invest in virtually everything you can get in a 401(k), plus much more.
10. 
    Here is the most important thing you can do to maximize your 401(k): Keep your contributions automatically payroll deducted, and make them no matter what. It is simple, but it is not easy. Half of the households in the United States have net worth of $25,000 or less. In a typical year, about two-thirds of U.S. households do not save money.

Remember, to be successful, first, imagine your early retirement; the Caribbean condo, the yacht, the new Lexus. Luxury and pleasure as far as your eyes can see. Create a strong vision, and then do not let go. The power of a clear, strong vision applies to more than just your retirement savings. Let your vision shape your life, instead of the other way around, and all of the time in the world can be yours. You will not be spending your Golden Years working at the Golden Arches

Thousands Now Survive Financial Hardship Who Never Thought They Could...With a Solo 401k !

Financial Emergency! It is unpredictable yet it happens to all of us.   Whether it's college tuition for your daughter, unexpected medical bills from an accident in the yard, covering the higher than expected closing costs on your new home or avoiding foreclosure or eviction because spending got out of hand; you're going to need money fast.

As one of the requirements for the tax exempt status of your Solo 401k, distributions of funds from your Solo 401k are limited to termination of employment, retirement, disability, death, plan termination or inservice distributions after age 59.5.  Severe options for those needing a temporary cash infusion.

Your Solo 401k to the Rescue.

To cover those temporary situations, the IRS allows Solo 401k ‚Äô s to provide disbursements of salary deferral contributions for financial hardships.
These financial hardships must satisfy one of the following IRS preapproved conditions:

• Medical bills unreimbursed by insurance


• Secondary Education for yourself, spouse or dependents


• Purchase of your primary residence or


• Avoid foreclosure or eviction

These hardship disbursements are not considered Solo 401k distributions with the option to be rolled over to IRAs or other qualified plans. But what happens if the Solo 401k financial hardship does not meet one of these criteria?  The request is denied and the consequences must be endured.

The IRS recognized that there were other significant events that could qualify as financial hardship and with IRS Regulation 2004-TD-9169, the IRS added two additional circumstances to the list of approved financial hardships.

1.Funeral Expenses and
2.Cost of Uninsured Repairs on your Primary Residence.  

These two new additions bring the approved circumstances to a total of six.
The changes to the safe harbor hardship rules resulting from the IRS regulations is the second set of changes to the hardship rules since GUST. The first set of changes occurred when EGTRRA reduced the holdout period for elective deferrals from 12 to 6 months. Please note that all of the changes to the hardship rules since GUST apply only to plans that use the safe harbor criteria for hardship withdrawals.
To add these two additional situations to the financial hardship provisions of your Solo 401k requires an amendment. Such an amendment should adopt the safe harbor financial regulations by reference so that any future additions are incorporated without additional amendment.

Want to retire with $1,127,376.04?  With more than two decades of operational and management experience Lawrence Groves has developed a sharp eye for how businesses get clobbered with retirement plan fees and how they can retool for a sleeker, smoother, strategically focused retirement plan. As an entrepreneur who quickly built his own successful consulting business he also empathetically helps other business owners set priorities and create the retirement programs that get results. Visit Solo 401k or
Womens Solo 401k

Contact Lawrence at Lawrence@solo-k.com or call 727-277-4137

ROTH 401(K)... A Wolf in Sheep's Clothing

Roth 401 (k) Overview:

After January 1, 2006, employees can choose to make their 401(k) contributions on either a pre-tax or an after-tax basis or a combination of the two. The contribution limits which apply to these 401(k) contributions made in 2006 (whether made pre-tax or after-tax or both) are:
1. $15,000 under the basic limit, plus,
2. $5,000 additionally for employees who are age 50 or older.

The employer remains responsible for withholding federal income tax (and state and local income tax, where applicable) and any applicable payroll taxes on the after-tax portion of each employee's 401(k) contribution.

While no federal income tax is withheld from pre-tax contributions, payroll taxes will apply to the amounts withheld as pre-tax contributions.

Absent additional IRS guidance, both the pre-tax and the after-tax contributions will be reported on each employee's W-2 just as is done now.

A separate recordkeeping account must be established for each participant who wishes to make Roth 401 (k) contributions.

Rules of the Roth 401(k)
To help with your decision, it is important to understand the rules of the Roth 401(k):
Roth 401(k) accounts are required to be separate accounts - the after-tax contributions cannot be combined with pre-tax contributions.

Distributions from the Roth 401(k) will be tax free for federal income tax purposes provided that both a 5-year holding period and a qualifying event requirement are met:
a) The 5-year holding period begins with the first contribution to any Roth 401(k) account in the employer's plan.
b) Qualifying events are limited strictly to attainment of 591/2, death, or disability.

Rollovers to a Roth 401k may be made from other employer sponsored Roth accounts. If rolled over to a Roth 401k, the 5-year holding period begins with the earlier of the date the rolled over account was established, or the date the receiving Roth account was established.

Our Reservations

A. The IRS should issue guidance clearing up that the determination of the five-taxable-year holding period is based on a calendar year rather than the plan year.

B. Requiring the plan administrator of the receiving plan to be responsible for tracking eligible rollovers of Roth contributions into a 401(k) plan and the time at which a Roth contribution was first made would be a deterrent to accepting rollovers of Roth contributions and would effectively restrict the transfer of these amounts. Participants should be responsible for tracking both the basis in the rollover account and the time at which a Roth contribution was first made.

C. Sponsors of plans that allow for Roth contributions should also have the ability to include plan provisions that set out ordering rules with respect to the account sources for all types of plan distributions.

D. The IRS should issue sample or good-faith amendments that plan sponsors may use without affecting reliance on prior determination letters, notification letters or opinion letters as to the qualification of the terms of their plans.

E. Sponsors of 401(k) plans that allow for Roth contributions and who want to implement an automatic enrollment feature should be able to choose whether pre-tax or Roth elective contributions will be the default election for participants.

F. Sponsors of 401(k) plans that allow for designated Roth contribution programs should be allowed to impose limitations on the ability and frequency of plan participants to choose between Roth and pre-tax elective contributions in a given calendar year without violating IRS rules.

G. A new model Distribution Notice to take into account distributions of both pre-tax and designated Roth elective contributions will be necessary. The current model is already 6 pages in length.

H. A plan sponsor should be able to maintain a plan that only allow for Roth contributions and no pre-tax salary deferrals.

Final Note
Again, we recommend that Employers and Sponsors of 401(k) Plans that are considering adopting the Roth provisions seriously consider the notes above. Perhaps it may be best to allow others to race ahead and see how they fare.


Want to retire with $1,127,376.04? With more than two decades of operational and management experience Lawrence Groves has developed a sharp eye for how businesses get clobbered with retirement plan fees and how they can retool for a sleeker, smoother, strategically focused retirement plan. As an entrepreneur who quickly built his own successful consulting business he also empathetically helps other business owners set priorities and create the retirement programs that get results.