How the SECURE Act Made Employer-Sponsored 401(k) Plans More Accessible

The Setting Every Community Up for Retirement Enhancement (SECURE) Act changed the rules for employers on retirement plans, making it easier for employers to offer 401(k) plans and for employees to take part in them. Here’s how.

Multiple Employer Plans

Known as MEPs, multiple employer plans permit businesses to band together to offer employees a defined contribution plan such as a 401(k) or SIMPLE IRA, effectively allowing workers access to the same low-cost plans offered by large employers. While MEPs existed before the SECURE Act, here’s how they are now easier to establish and maintain.

  • The “one bad apple rule”, where one employer’s failure to comply jeopardized the entire plan, was done away with.
  • The “common nexus” requirement, which restricted the MEP option to small business employers who operated either in the same industry or same geographic location, was eliminated, permitting an “open MEP” that can be administered by a pooled plan provider (typically a financial services firm).
  • MEPs with fewer than 1,000 participants (and no more than 100 participants from a single employer) are excluded from a potentially expensive audit requirement.
  • Small business employers are also eligible for new tax credits for offering retirement savings options to employees.

Changes to Safe Harbor Plans

A provision of the SECURE Act provides more flexibility for employers who offer safe harbor 401(k) plans, which are 401(k) plans with an employer match that allows for avoidance of most annual compliance tests. If a 401(k) includes a Safe Harbor provision, the employer makes annual contributions on behalf of employees, and those contributions are vested immediately. Flexibility offered by the SECURE Act includes:

  • Increasing the automatic enrollment escalation cap under a qualified automatic contribution arrangement (QACA) 401(k) plan from 10 to 15%.
  • Removing the notice requirement for nonelective contributions. (The notice requirement is still applicable, however, for plans that implement the safe harbor match.)
  • Whereas pre-SECURE Act, switching to a safe harbor plan had to be done before the start of the plan year, employers are now allowed to switch to a safe harbor 401(k) plan with nonelective contributions anytime up to 31 days before the end of the plan year. Amendments after that time are approved if (1) a nonelective contribution of at least 4% of compensation is granted for all eligible employees for that year, and (2) the plan in amended by the close of the following plan year.

Automatic Enrollment Credit

The SECURE Act added an incentive for small businesses to feature automatic enrollment in their plans by allowing businesses with fewer than 100 employees to qualify for a $500 per year tax credit when they create a new plan that includes automatic enrollment. Business can also take advantage of this by converting an existing plan to one with an automatic enrollment. The tax credit is available for three years following the year the plan automatically begins enrolling participants.

Part-Time Employee Participation

Previously, employers could exclude employees who work fewer than 1,000 hours per year from defined contribution plans, including 401(k) plans. Starting in January of 2021, the SECURE Act requires employers to include employees who work at least 500 hours in three consecutive years. This means that in order to qualify under this rule, employees would need to meet the 500-hour requirement for three years starting in 2021 in order to become eligible in 2024.

Choosing the Right Plan for Your Business

  • Research 401(k) plan options for your business, keeping in mind that retirement plans can be customized to meet the needs of you and your employees.
  • Carefully read through costs and fees of each plan. Recordkeeping fees, transaction fees, and investment fees are some to be mindful of, and these fees might increase if you add more employees and the plan grows (i.e. low-cost plans upfront might not be the best plan for your business in the long term.)
  • Look for a 401(k) plan that presents a variety of investment opportunities for employees in terms of stocks, bonds, broad-based international exposure, and emerging markets.

Work with a financial expert who can help you establish and oversee a 401(k) plan. These professionals can include third-party administrators, recordkeepers, and investment advisors and managers.

Remote Working During COVID-19: Tips for Productive Days

More people are working remotely now more than ever, and the change from office to home might have proven to be a surprising adjustment. The flexibility that comes with working from a home office is a definite advantage, but staying focused, motivated, and disciplined might be challenging. Throw into the mix a significant other who’s also working from home and kids and pets, and your day can quickly veer off track. Below are some tips to help your days be more productive.

Designate a Workspace

Designate a specific area in your home to get work done. If you don’t have a home office, take over a spare bedroom or another space that can offer some privacy—even a closet can be converted into a workspace. Having this space dedicated to your workday will help you stay mentally focused. Make sure this space is equipped with the equipment and tools you’ll need on hand during the day, such as a computer, high-speed Internet connection, any office supplies, and sufficient light. If you find your designated space wholly uninspiring, spruce it up with some artwork, potted plants, a rug, etc.

Set Structure and Boundaries

With all household members in close quarters, it’s crucial to set boundaries. Set up and maintain working signs and cues (i.e. close the door when on a phone call and use timers for the kids to set designated not-to-be-disturbed work time). Also be sure to set a consistent working schedule so you’re not tempted to be pulled away throughout the day by non-work related chores and requests. To keep your workflow moving, create a to-do list each day with specific and achievable tasks and deadlines, with the most important at the top. Whatever you don’t get done, put at the top of your list for the next day. Finally, treat your weekdays just as you did before. This includes waking up at the same time every day and getting dressed in the morning. Don’t roll out of bed and lug your laptop onto the couch and expect to have a productive day.

Stick to Schedules with Children

Some schools are getting back in session as early as later this month, and many parents are opting for digital learning or homeschooling. If you have school aged children, staying organized during this time is crucial. Attempt to replicate the schedule of a typical school day, with designated breaks for lunch and “recess”. If you have younger kids, the bulk of your work may need to get done during naps or quiet time. If your partner is also working from home, try splitting the day between the two of you, so one is “on shift” with the kids in the morning and the other in the afternoon. It might take some trial and error to find what works for your family, but once you find a good fit, be sure to stick to it.

Overcommunicate

Communication is more critical when working remotely, and needs to happen more frequently. Be sure to consistently reach out to managers and colleagues, and know what’s expected of you. Being proactive on this front will help you define weekly goals and build more sustainable relationships with coworkers. If you’re managing a team, be sure to bring everyone in on conversations so no one feels out of the loop, and everyone knows about assignments, deadlines, and various moving parts. If you do this regularly, it can be handled more as a casual check-in rather than a big formal meeting.

Take Breaks and Make Time for Creative, Physical, and Mental Health

This is a stressful time for everyone, so it’s even more critical to take care of your creative, physical, and mental health. Anyone who’s worked at home for a while will tell you that it’s possible for hours can go by without even realizing it when you’re lost in the work. Aside from the fact that sitting for excessively long periods of time can lead to back and neck pain, it also isn’t healthy for your mind. Be sure to take breaks, go for walks, exercise, and get into a creative project or hobby.

Could the Coronavirus Lower Home Prices? Well, Maybe.

Since early March, the COVID-19 pandemic has been making a substantial financial impact on millions of people across the country.  With 22 million jobless claims in just one month and a slowly moving economy, many homeowners are left wondering if their properties will see a decline in value as workers continue to lose their jobs and minimize personal spending. Spring is traditionally the prime time for buying and selling homes, but thanks to COVID-19, listings have dropped significantly. 

What We Already Know

Beginning in March, mortgage rates have fluctuated significantly. They’ve fallen to record lows—the average for a new 30-year fixed-rate mortgage currently falls near 3.33% – and may continue to drop. For those who already own homes, applications to refinance their homes are up almost 168% from March 2019. 

Mortgage rates and home values, while related, are two separate entities. History shows us that home prices are likely to fall during recessions, but to what degree is specific to your local market. If available homes in a particular area are already highly sought-after (places like San Francisco, Los Angeles, or Seattle), it is unlikely homeowners will see their property values go down much at all. That said, with such low mortgage rates available, buyers who haven’t suffered from layoffs or unemployment could find their opportunity to purchase a property. If there is still a demand for homes in an area, home prices are likely to remain steady. 

Past research from Zillow shows us that during previous pandemics in the US that home prices remained stable with only small declines in home prices. The research also showed that there were fewer real estate transactions and NOT sales happening at a loss. 

COVID-19 is already an oddity, and its impact cannot be denied around the world. With that, all homeowners with interest in selling should be prepared for the likelihood of home values dropping until this pandemic passes and the economy settles. While a drop in home values could leave sellers in a challenging situation, it’s also not ideal for anyone who may be looking to draw upon their home equity in the not-so-distant future. 

While so much of our lives remain up in the air, and while the economy is so unsettled, this is an opportunity to pull back and see what happens. If the panic around COVID-19 dies down sooner than anticipated, buyers and sellers may not even notice a change in the market. 

Smart Moves to Make with Your Tax Refund

Whether you’re working with a robust tax refund, a work bonus, or an inheritance of some kind, here’s a list of positive moves to make with that windfall.

Evaluate Your Debt

There’s “bad” debt and “good” debt. Good debt is an investment that will grow in value or generate long-term income, such as student loans or home equity loans. Bad debt is anything that quickly loses value, doesn’t generate income, and/or has a high interest rate, such as credit cards and cash advance loans. Whenever you come into extra funds, it’s recommended to pay down or pay off bad debt as a top priority.

Consider Your Emergency Fund

Your rainy-day fund should be stocked with at least three months’ worth of living expenses. If yours isn’t there yet, think about boosting it with your refund. If you are a business owner or your income fluctuates, consider shooting for six months’ worth of living expenses.

Fund Your 401(k)

This is a good time to open or boost contributions to your 401(k) or individual retirement account. The 401(k) contribution limit for 2020 is $19,500 for those under age 50, and taxpayers over age 50 are allowed an additional “catch-up” contribution of $6,500.

Open a Roth IRA

If you’re married filing jointly and have a combined adjusted growth income of less than $196,000, you can contribute up to $6,000 to a Roth IRA. The adjusted growth income cap for single filers is $124,000. This is meant to be a long-term money management move, but if you need to withdraw sooner, you can do so tax-free and penalty-fee, though you may owe taxes and penalties on any earnings (not regular contributions) you withdraw.

Invest in Stocks

Assuming you’ve paid off debt, built up your emergency savings fund to three to six months’ worth of living expenses, and boosted your retirement fund, you could think about consulting a financial professional to build a stock portfolio that aligns with your financial goals and personal risk tolerance. Or, if you’re stock market savvy, you can open a brokerage account on your own and start investing in a stock you believe has the potential for growth.

Additional money moves you could make with your refund (again, assuming debt, emergency savings, and retirement funds are taken care of) include making home improvements; opening up a savings account for something big, like saving for a down payment on a house; or donating to charity.

How to Prevent Tax Identity Theft

The start of a new year is a time for fresh starts and new goals, but it’s also the beginning of the oft-dreaded tax season, which means Tax identity thieves are on the lookout for information they can use in order to create fraudulent tax returns. Here are some tips to help protect yourself from tax identity theft during tax season.

File Early to Prevent Tax Identity Theft

Tax-related identity theft most commonly occurs from February to early March because thieves want to beat real taxpayers to the punch by filing fraudulent returns before legitimate ones. Because the IRS allows only one tax return per Social Security number per year, your best defense against identity theft is to file your taxes as early as possible.

Use E-File Instead of Postal Mail

An e-filed tax return arrives instantly at the IRS, which then sends back an acknowledgement receipt. At this point you’ll be notified if there’s any suspicious activity, such as possible identity theft. The quicker you know, the quicker you can deal with it. Before you e-file, however, be sure that your firewall, antivirus, and anti-spyware software are all up to date. If you do send your tax return in by post, think about taking it directly to the post office rather than letting it sit in your mailbox.

Don’t Fall for Scams

The IRS will not contact you by phone, email, or text to ask for personal or financial information. Never give out your Social Security number, passwords, PINs, and credit card or bank information to someone who reaches out via these channels. Official correspondence from the IRS is issued in the form of a letter and sent through the mail. However, scammers are getting increasingly clever, and sometimes phony links can look just like the real IRS website. If you ever have questions about the legitimacy of an IRS related query, your best bet is to call the IRS at 800-829-1040.

Protect Your Financial Accounts

Start by using a different password for each of your financial accounts, preferably one that combines letters, numbers, and special characters. It’s also wise to use a two-factor authentication when available, which requires you to verify your login—typically a code sent via call or text.

How to Report Tax Identity Theft

If you’re a victim of tax-related identity theft, you’ll find out when you try to file your return and learn that a return has already been filed with your Social Security number, or you’ll receive a letter from the IRS stating that a suspicious return using your Social Security number has been identified. If either of these happen, you should do the following:

  • Complete a paper return. As shocking as it is to learn that you’ve been the target of identity theft, you still need to file your tax return. In order to avoid tax penalties or late fees, submit a paper return by the filing deadline.
  • Go to IdentityTheft.gov to file a report with the FTC and IRS.
  • File an Identity Theft Affidavit (Form 14039). Fill out and attach this form to your paper return. It will make its way to the Identity Theft Victim Assistance Organization, which will work on your case. Be prepared to submit various forms of documentation proving your identity.
  • Contact the three major credit bureaus—Equifax, Experian, and TransUnion—and ask them to place a fraud alert on your credit records. You should also consider asking them to freeze your credit in case the thief should try to open new credit accounts in your name.
  • Request a copy of the fraudulent return via Form 4506-F. Seeing the fraudulent return will help you determine the specifics of the theft, such as what family information has been compromised.
  • As a precaution, delete any stored credit card numbers from shopping sites and change saved passwords to online accounts.

 

If you have questions on tax identity theft or would like to discuss your 2019 tax return, please feel free to email me at dkittell@mkrcpas.com or call 317.549.3091.