Objective information about financial planning, investments, and retirement plans

Six Reasons Small Businesses Should Offer a 401(k) Plan


The statistics on the number of American workers not covered by a workplace retirement plan like a 401(k) are sobering. According to a 2011 survey just over half of all American workers had access to a workplace retirement plan.

Sadly all too often the reason that smaller companies don’t offer a 401(k) plan are that they can be expensive and there are a vast number of government rules and regulations that must be followed. Small business owners have all that they can handle in running and growing their companies.

Here are six reasons that a small business should consider offering a 401(k) plan for their employees.

The owner’s retirement needs

 Small business owners work hard to manage and grow their companies. Unlike with a larger organization there generally are not armies of employees to handle administrative tasks like human resources or accounting. The owner is often the face of the business and intimately involved in sales and various business processes. It is not uncommon for small business owners to put in many long hours and take very little time off.

Too often the hope is that the value of the business will serve as their retirement plan. Maybe this will happen; they will find a willing buyer who will pay a premium price for the company. Or maybe it won’t happen at least not quite that way.

A 401(k) plan allows the business owner to contribute up to $18,000 or $24,000 (if 50 or over) of their compensation for 2015. In addition they can make a profit sharing contribution as well. This can bring the total combined employee deferral and employer contribution for the owner to a maximum of $53,000 or $59,000 if they are 50 or over. This can go a long way towards helping the business owner fund a comfortable retirement for themselves.

Business contributions and tax dedications

Any employer matching contributions will be tax-deductible as will any costs incurred by the employer in connection with offering the plan.

In order to alleviate any restrictions on the amount the business owner and top executives can contribute for themselves the company may decide on a safe harbor plan that entails a minimum matching level or a minimum level of contributions to the accounts of all employees whether they contribute to the plan or not. The safe harbor contributions are immediately vested for the employees. In exchange the owner will not be limited as to the amount of their contributions based on the results of the required non-discrimination testing. Certainly not all small businesses will be able to afford the safe harbor contributions but for those that can this is a great solution for the owners and the employees.

Doing the right thing for employees

There many articles written and studies done that point to a retirement savings crises in this country. Part of the problem as mentioned above is the lack of availability of a workplace retirement plan for a number of U.S. workers.

Offering your employees a low cost 401(k) plan is a great way to help them save for their retirement and frankly it’s the right thing to do for employees. They work hard and contribute to the success of the business, they should have the opportunity to save for their own retirement and build a measure of financial security for themselves and their families.

Attract and retain top talent

With the economy having largely recovered from the financial crises unemployment is low and many companies are having a hard time finding the workers they need in some cases. Top talent expects to be well-compensated and a quality 401(k) plan is a part of a top-notch compensation package. While likely not the main driver of determining whether a top prospective employee accepts your job offer, a really lousy 401(k) plan (or no plan) might be the “tie-breaker.”

Likewise if a valued employee is being courted by a competitor and that competitor has a robust benefits package that includes a much better 401(k) plan that might be the difference between retaining that key employee and losing them. 

Financial wellness can help the bottom line

Employees who are worried about retirement or other financial issues may be less productive at work. Stressed out employees might also drive up the company’s healthcare costs.

According to a survey by benefits consultant AON Hewitt about 90% of the country’s 250 largest employers also recognize the impact of financial stress on their workforce and will be looking to expand or start financial wellness programs.

Small businesses may not have the resources of these large companies but offering a solid, low cost 401(k) plan is a positive step for their employees on the road towards financial wellness. 

Technology has expanded plan options

Just a few years ago smaller plans and start-ups had very few alternatives and most of those alternatives were high cost plans with questionable investment choices. Insurance company group annuities were also a common option in this market, again generally an expensive, unattractive option.

There are a number of low-cost 401(k) options for small businesses today that thanks in large part to technological advances can offer a complete package including administration, education and low-cost investing options at a reasonable price. Some of these providers serve as plan fiduciaries taking that responsibility off of the shoulders of the business owner.

Frankly cost and the rules connected with running a plan can make it a hassle where these issues and the costs outweigh the good of offering the plan in the minds of many small business owners. The new generation of user-friendly low cost options for small businesses remove this hurdle.

The Bottom Line 

Traditionally the 401(k) options for small businesses have been limited to high cost options with less than desirable investment options. Today with the advances in technology there are a number of low cost, low-hassle options for small companies to consider. Offering a 401(k) plan is a win-win for small businesses in that the owners win and so do their employees.

This post was sponsored (meaning that I was compensated) by San Francisco based ForUsAll an innovative provider of low cost turnkey 401(k) solutions for small businesses. They had no editorial input on anything above. 

I discovered ForUsAll in a finance blogging group that I am part of and was very impressed with what they can offer a small business looking for a turn-key 401(k) solution. They take all of the administrative and compliance burdens off the shoulders of the plan sponsor through their status as a 3(16) fiduciary. Via their menu of low-cost Vanguard funds and their technology they offer a complete 401(k) solution that includes guidance for employees.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner

What I’m Reading – Super Bowl I Rematch Edition


This week’s Monday Night Football match-up features my Green Bay Packers hosting the Kansas City Chiefs at beautiful Lambeau Field.

This is a rematch of the first Super Bowl (actually called the NFL-AFL Championship) played in the LA Coliseum in January of 1967. I was nine and even at that point a Packer fan for life. There were 30,000 empty seats and neither network (the game was televised by both NBC and CBS) preserved a recording of the game. An old tape copy from an individual was recently restored. This is a far cry from the hype that surrounds the Super Bowl today.

The Packers had 10 future Hall of Famers plus Coach Lombardi. The Packers won 35-10. let’s hope for a similar result this time around as well.

Here are a few good financial articles to read while waiting for the kickoff:

Christine Benz discusses Dos and Don’ts for Mutual Funds Capital Gains Season at Morningstar.com.

Barbara Friedberg shares the 20 Dumbest Moves First-Time Investors Make at Go Banking Rates.

Sarah O’ Brien tells us that Financial planning is beyond investments, retirement plans at CNBC.com. 

Jim Blankenship warns us about Identity Theft Protection  at Getting Your Financial Ducks in a Row.

Elizabeth O’ Brien discusses When financial ‘advice’ is really a sales pitch at Market Watch.

I continue to write for Investopedia, here are a few of my recent contributions:

Betterment’s all-ETF Online 401(k) plan

Restricted Stock Units: What to Know

Closed-End Funds: A Primer

Enjoy the game. Go Pack Go!

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner.

What I’m Reading – NFL 2015 Season Opener Edition


I write this on a sad date, September 11. The morning of September 11, 2001 I was waking up in a hotel room in Clinton, IA and would be doing an employee benefits seminar for Ernst & Young later in the day. The first plane hit the tower and the cable news commentator speculated that it had gone off course. We of course learned the truth shortly afterwards. What a sad day and I’m sure none of us will ever forget where we were or what we were doing.

On a happier note the NFL season started last night with the Patriots beating the Steelers and most importantly there was no news about the firmness of Tom Brady’s balls. The real season starts on Sunday and I will be rooting for America’s team The Green Bay Packers.

It’s starting to look like fall here in the Chicago area; here are a few good financial articles to curl up with this weekend:

Mike Piper answers a reader question Should I Still Contribute to a 401(k) if I Plan to Retire Early? at the Oblivious Investor.

Barbara Friedberg shares Top Tax Strategies for Retirement at Investopedia. 

John Rekenthaler discusses Where Active Management Succeeds (or Fails) at Morningstar.com. 

Mark Hulbert shares Opinion: An investing lesson from the 9/11 tragedy at Market Watch. 

Jim Blankenship explains RMDs From IRAs  at Getting Your Financial Ducks in a Row.

I continue to write for Investopedia, here are a few of my recent contributions:

Robo-Advisors Face First Market Downturn Test

Why Market Timing Should Be Left to the Pros

Annuities and Baby Boomers: The Pros and Cons

Have a great weekend.  Yes the recent stock market volatility is unsettling but always take a deep breath and fall back on your financial plan before reacting to this or any stock market or economic activity.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner.

Financial Planning Steps for the rest of 2015


Labor Day is here and the college football season started with our local Big 10 team Northwestern scoring an upset win over a ranked Stanford team. Next weekend is the first full weekend of NFL football with my Green Bay Packers visiting Soldier Field where they should continue their winning streak over the hapless Bears.

With a bit less than a third of 2015 left there are a number of financial planning steps you should be taking between now and the end of the year. Frankly I wrote a similar piece at this time last year Eight Financial To Do Items for the Rest of 2014 and I would encourage you to check this piece out as these eight items are just as applicable in 2015. The eight items (for those who prefer the Cliff Notes version) are:

While all eight of these items are critical financial planning steps to be tended to or at least reviewed this year or in any year, the environment in the financial markets has changed from this time a year ago.

August and so far early September has proven to be a rough patch for the stock market with much volatility and pronounced drops from highs reached earlier in 2015. The financial press is filled with stories about what to do and this has become a major event for the cable financial news stations.

In this context here are a few thoughts regarding some financial planning steps for the rest of 2015.

Get a financial plan in place or update your current one 

To me a comprehensive financial plan is the basis of an investment strategy and frankly all else in your financial life. If you have a plan in place, revisit it. If you don’t this is a great time to find a qualified fee-only financial planner and have one done.

Where are you in terms of financial goals like retirement and saving for your children’s college education? Do you have an estate plan in place?

With the markets taking a breather this is a good time to see where you are and what it will take to get you where you want to be financially. An investment strategy is an outgrowth of your financial plan and this plan is something to fall back on in times of market turmoil like the present.

Review your investments and your strategy 

How has the recent market decline impacted your asset allocation? Does your portfolio need to be rebalanced? Is your asset allocation consistent with your goals, risk tolerance and time horizon as outlined in your financial plan?

While I don’t advocate making wholesale changes to your portfolio based on some temporary stock market volatility it is always appropriate to do a periodic review of your overall portfolio, your asset allocation and the individual holdings in your accounts. These include mutual funds, ETFs, individual stocks and bonds and so forth.

The recent weakness in the markets may have created some opportunities for year-end tax loss harvesting in your taxable accounts. This refers to selling shares that show a loss to realize taxable losses. If you want to do this but also want to continue to own these or similar investments be sure to consult with a financial or tax advisor who understands the wash-sale rules.

More likely you have many investments that have appreciated nicely and these represent and excellent vehicle to make charitable contributions. Not only do you receive a tax deduction for the value of the gift, but you eliminate the tax liability for any capital gains on the holdings. 

Review your 401(k) 

The current situation in the stock market is a good time to check your account and rebalance your holdings if needed. Better yet if your plan offers it sign up for automatic rebalancing so you don’t have to worry about this.

Fall open enrollment is often the time when companies roll out any changes to the plan in terms of the investments offered, the company match or other aspects of the plan. Additionally most plans were required to issue annual disclosures by the end of August so be sure to review yours to see where the investments offered are compared to their benchmark indexes and how much they are costing you.

Lastly check to see how much you are contributing to your plan. If you are not tracking toward the maximum salary deferrals of $18,000 or $24,000 (for those who will be 50 or over at any point in 2015), try to increase your contributions for the rest of 2015.


Labor Day is here and summer is unofficially over. Use the remainder of 2015 to tackle these issues and to get your financial situation where it needs to be.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner.

Check out Carl Richards’ (The Behavior Gap) excellent book The One Page Financial Plan. Carl is a financial advisor and NY Times contributor. This is an easy read and offers some good ideas in approaching the financial planning process. 

The Risks of Too Much Company Stock in Your 401(k) Plan


Retirement plan sponsors are starting to get it, requiring 401(k) participants to hold company stock in their accounts exposes them to major fiduciary liability if the stock price tanks. That said it is still an option in many 401(k) plans.

According to Fidelity about 15 million people own about $400 billion in company stock across 401(k) plans that they administer.

Too dependent on your employer    

Just ask former employees of Enron, Lehman Brothers or Radio Shack about this.

All employees depend on their employer for a paycheck. If you add a high level of company stock as a component of your 401(k) account you have a recipe for disaster. If the company tanks you might find yourself out of job with no income. If this difficulty causes the stock price to decline you are not only unemployed but your retirement nest egg has taken a hit as well.

How much is too much? 

There is no one right answer; this will vary on a case by case basis. Many financial advisors say the total in employer stock should be kept to a maximum of 5% to 10% of total investment assets. This not only includes stock held in your retirement plan but also shares held outside the plan as well shares represented by any stock options or restricted shares that may be held.

Employers and fiduciary risk 

In the past it was more common for companies to use their stock as the matching vehicle in the 401(k) plan and to require that it be held for a period of time. Both are less common today due to a number of lawsuits by employees against companies after significant declines in the price of their employer’s stock. Plan sponsors want to avoid this type of fiduciary liability.


It is important to set a maximum allocation to your employer’s stock in your 401(k) plan and in total.  Use increases in the stock price as opportunities to take profits and diversify. Within your 401(k) plan there will be no taxes to pay on the gains, though there will be taxes due down the road when taking distributions from a traditional 401(k).

Make sure you fully understand any restrictions on selling company shares held in your plan.

Discounted purchases 

Often employees have the opportunity to purchase shares of company stock at a discount from the current market price. This is a great feature but the decision to purchase and how much to hold should not be overly influenced by this feature.

Net Unrealized Appreciation 

If you leave your employer and hold company shares in your 401(k) plan consider using the net unrealized appreciation (NUA) rules for the stock.

NUA allows employees to take their company stock as a distribution to a taxable account while still rolling the other money in the plan to an IRA if they wish. The distribution of the company stock is taxable immediately, at ordinary income tax rates, based upon the employee’s original cost versus the current market value.

The advantage for holders of highly appreciated shares can be sizable. Any gains on the stock will qualify for long-term capital gains treatment where the rates are generally lower. For a large chunk of company stock the savings can be very significant. Note there are very specific rules regarding the use of NUA so it is best to consult with a knowledgeable financial or tax advisor if you are considering going this route.

The Bottom Line 

Holding excessive amounts of your company’s stock in your 401(k) plan can expose you to undo risk should your employer run into financial difficulty. You could find yourself unemployed and with a much lower retirement plan balance if the stock price drops significantly. Set a target percentage for your overall holdings of employer stock and periodically sell shares if needed to rebalance just as you would any other holding in the plan.

Small Business Retirement Plans – SEP-IRA vs. Solo 401(k) 2015 Update


This is an update of one of the most popular posts on this blog Small Business Retirement Plans – SEP-IRA vs. Solo 401(k) revised to reflect contribution limits for 2015.  As a business owner it is up to you to save for your own retirement.  Both of these vehicles can be good choices depending upon your situation.  You work hard and deserve a solid retirement.  Please start a retirement plan for yourself and your family, or if you have one in place make sure you fund it.

 A comparison of the main features of the two plans – 2015 Update

SEP-IRA * Solo 401(k)
Who can contribute? Employer contributions only. Employer contributions and employee deferrals.
Employer contribution limits For 2015, up to 25% of the participant’s compensation or $53,000, whichever is lower. Contributions are deductible as a business expense and are not required every year. For 2015, employer plus employee contribution limit is $53,000 ($59,000 if the employee is age 50 or older).  Contributions are deductible as a business expense and are not required every year.
Employee contribution limits The maximum combined employee contribution to a SEP-IRA and/or a Roth or Traditional IRA is $5,500 ($6,500 for those 50 or over). $18,000 for 2015.  Plus an additional $6,000 for participants 50 and over.  In no case can this exceed 100% of compensation.
Eligibility Typically, employees must be allowed to participate if they are over age 21, earn at least $600 annually, and have worked for the same employer in at least three of the past five years.  Check with your custodian for specific eligibility requirements. No age or income restrictions, generally.

Note the Solo 401(k) is also referred to as an Individual 401(k).

*A SEP-IRA can be started up for the prior tax year until the date that your tax return is due including extensions.  Likewise contributions for the prior tax year can be made up until the date your extension is due.  For those who have not made a contribution to a retirement plan for the 2014 tax year this might be an option as of the date of this article. 

 A few points to consider 

  •  While a SEP-IRA can be used with employees in reality this can become an expensive proposition as you will need to contribute the same percentage for your employees as you defer for yourself.  I generally consider this a plan for the self-employed.
  • The Solo 401(k) Plan is also for the self-employed with no employees other than a spouse or business partner.
  • Both plans allow for employer contributions up your tax filing date, including extensions for the prior tax year.  The Solo 401(k) plan must be established by the end of the calendar year.
  • Note that the SEP-IRA contribution is calculated as a percentage of compensation.  If your compensation is variable so will the amount that you can contribute to plan year-to year.  Even if you have the cash to do so, your contribution will be limited by your income for a given year.
  • By contrast you can defer the lesser of $18,000 ($24,000 if 50 or over) or 100% of your income for 2015 into a Solo 401(k) plus the profit sharing contribution.  This might be the better alternative for those with plenty of cash and a variable income.
  • Loans are available from Solo 401(k)s, but not with SEP-IRAs.
  • Roth feature is available for a Solo 401(k) if allowed by your plan document. There is no Roth feature for a SEP-IRA.
  • Both plans require minimal administrative work, though once the balance in your Solo 401(k) account tops $250,000, the level of annual government paperwork increases a bit.
  • Both plans can be opened at custodians such as Charles Schwab, Fidelity, Vanguard, T. Rowe Price, and others. For the Solo 401(k) you will generally use a prototype plan. If you want to contribute to a Roth account, for example, ensure that this is possible through the custodian you choose.
  • Investment options for both plans generally run the full gamut of typical investment options available at your custodian such as mutual funds, individual stocks, ETFs, bonds, closed-end funds, etc. There are some statutory restrictions so check with your custodian. 

Both plans can offer a great way for you to save for retirement and to realize some tax savings in the process.  Whether you go this route or use some other option better suited to your situation I urge you to start saving for your retirement today  Talk with your financial or tax advisor to determine the best retirement plan for your situation.

Please feel free to contact me with your questions, comments and suggestions for future topics you’d like to see covered here at The Chicago Financial Planner.


7 Tips to Become a 401(k) Millionaire


According to Fidelity, the average balance of 401(k) plan participants grew to a record high of $91,300 at the end of 2014.  This data is from plans using the Fidelity platform.

According to Fidelity about 72,000 participants had a balance of $1 million which is about double the number at the end of 2012 and about 5 times the number at the end of 2008.  What their secret?  Here are 7 tips to become a 401(k) millionaire or to at least maximize the value of your 401(k) account.

Be consistent and persistent 

Investing in your 401(k) plan is more of a marathon than a sprint.  Maintain and increase your salary deferrals in good markets and bad.

Contribute enough 

In an ideal world every 401(k) investor would max out their annual salary deferrals to their plan which are currently $18,000 and $24,000 for those who are 50 or over.  If you are just turning 50 this year or if you are older be sure to take advantage of the $6,000 catch-up contribution that is available to you.  Even if you plan limits the amount that you can contribute because of testing or other issues this catch-up amount is not impacted.  It is also not automatic so be sure to let your plan administrator know that you want to contribute at that level. 

According to the Fidelity study the average contribution rate for those with a $1 million balance was 16 percent, while the average contribution across all 401(k) investors they surveyed was about 8 percent.  The 16 percent contribution rate translated to a bit over $21,000 for the millionaire group.

As I’ve said in past 401(k) posts on this site it is important to contribute as much as you can.  If you can only afford to defer 3 percent this year, that’s a start.  Next year try to hit 4 percent or more.  As a general rule it is a good goal to contribute at least enough to earn the full matching if your employer offers one.

Take appropriate risks 

As with any sort of investment account be sure that you are investing in accordance with your financial plan, your age and your risk tolerance.  I can’t tell you how many times I’ve seen lists of plan participants and see participants in their 20s with all or a large percentage of their account in the plan’s money market or stable value option.

Your account can’t grow if you don’t take some risk.  

Don’t assume Target Date Funds are the answer 

Target Date Funds are big business for the mutual fund companies offering them.  They also represent a “safe harbor” from liability for your employer.  I’m not saying they are a bad option but I’m also not saying they are the best option for you.

I like TDFs for younger investors say those in their 20s who may not have other investments outside of the plan.  The TDF offers an instant diversified portfolio for them.

Once you’ve been working for a while you should have some outside investments.  By the time you are say in your 40s you should consider a more tailored portfolio that fits you overall situation.

Additionally Target Date Funds all have a glide path into retirement.  They are all a bit different, you need to understand if the glide path offered by the TDF family in your plan is right for you. 

Invest during a long bull market 

This is a bit sarcastic but the bull market for stocks that started in March of 2009 is in part why we’ve seen a surge in 401(k) millionaires and in 401(k) balances in general.  The equity allocations of 401(k) portfolios have driven the values higher.

The flip side are those who swore off stocks at the depths of the 2008-2009 market downturn have missed one of the better opportunities in history to increase their 401(k) balance and their overall retirement nest egg.

Don’t fumble the ball before crossing the goal line 

We’ve all seen those “hotdogs” running for a sure touchdown only to spike the ball in celebration before crossing the goal line.

The 401(k) equivalent of this is to just let your account run in a bull market like this one and not rebalance it back to your target allocation.  If your target is 60 percent in stocks and it’s grown to 80 percent in equities due to the run up of the past few years you might well be a 401(k) millionaire.

It is just as likely that you may become a former 401(k) millionaire if you don’t rebalance.  The stock market has a funny way of punishing investors who are too aggressive or who don’t manage their investments.

Pay attention to those old 401(k) accounts 

Whether becoming a 401(k) millionaire in your current 401(k) account or combined across several accounts the points mentioned above still apply.  In addition it is important to be proactive with your 401(k) account when you leave a job.  Whether you roll the account over to an IRA, leave it in the old plan or roll it to a new employer’s plan if allowed do something, make a decision.  Leaving an old 401(k) account unattended is wasting this money and can be a huge detriment to your retirement savings efforts.

The Bottom Line 

Whether or not you actually amass $1 million in your 401(k) or not the goal is to maximize the amount accumulated there for retirement.  The steps outlined above can help you to do this.  Are you ready to start down the path of becoming a 401(k) millionaire?

Please feel free to contact me with your questions. 

Check out an online service like Personal Capital  to manage all of your accounts all in one place.  Please check out our Resources page for more tools and services that you might find useful.