The end of 2021 is fast approaching, which means for both individuals and retirement plan sponsors alike, there are only a few weeks left to get your retirement plans in order before we transition to 2022. Below are some retirement plan moves to consider making before the end of the year.

Retirement Planning for Individuals*

If you’re an individual who owns an employer-sponsored 401(k) account, here are some things you should think about doing before the end of the year:

Make Last-Minute 401(k) Contributions

If you’re age 49 or younger, you can contribute up to $19,500 to your 401(k) plan in 2021. Contributions are typically due by December 31, but it’s a good idea to avoid waiting until the last minute. Most providers need to have a little lead time of at least one paycheck—and sometimes two—to ensure all 401(k) contributions are allocated timely. In some cases, you can also allocate part or all of a year-end bonus to your 401(k) account and avoid the extra tax bill on it. If you’re age 50 or older, you can contribute an extra $6,500 to a 401(k) account as a catch-up contribution in 2021, for a total of $26,000.

Take Your RMDs

Distributions from Traditional 401(k) and IRA accounts are required after age 72, and income tax will be due on each withdrawal. The penalty for missing a distribution is a 50% tax on the amount that should have been withdrawn. You have until April 1 of the year after you turn 72 to take your first RMD, but subsequent distributions are due by December 31 of each year. And if you delay your first distribution until April, you will then need to take two distributions in the same year, which could result in an unusually high income tax bill. If you have to take two distributions in that year, you may want to be careful, because it could push you up into a higher tax bracket.

Reset Your Contributions for 2022

Limits on 401(k) contributions change on an almost yearly basis, so it’s important to be up to date on how much you’re allowed to contribute. Consider setting your periodic 401(k) contributions at an amount that will dollar-cost average you in throughout the year and get you to reach the maximum limits. Also, make sure you take full advantage of your 401(k), especially if there is an employer match.

Review Your Beneficiary Elections

Review your current beneficiary elections to ensure they are up to date with any major changes in your life. For estate planning purposes, beneficiary designations supersede what’s listed in your will, so it’s important to always make sure these are up to date and accurate.

Considerations for Retirement Plan Sponsors**

Are you a business owner who provides a 401(k) plan for your employees? Below are some year-end checklist items to consider as you prepare for the administration and operations of the plan for 2022:

Take Inventory

Check your plan documents file. Ideally, you should keep a copy of every plan document that was ever adopted for your plan. Make sure that all your amendments are properly signed and that you returned a signed copy to your third-party administrator (TPA) and/or plan record keeper.

Check Your ERISA Bond

If you’re required to maintain an ERISA bond, make sure that your policy covers the proper amount (generally 10% of plan assets up to a maximum of $500,000).

Document Notice Delivery

Plan participants must be provided information about the plan. The information required depends on your plan design. For example, notices may include:

  • Summary Plan Description
  • Summary of Material Modifications (amendments adopted after the SPD was drafted)
  • Automatic Enrollment notices
  • Safe Harbor notices (for 401(k) and 403(b) plans that have Safe Harbor provisions)

For participant-directed accounts, you may have Fee Disclosure notices, and Qualified Default Investment Arrangement updates. Pension plans may have Annual Funding Notices to deliver. Make sure that you develop internal policies and procedures to make sure that the notices that are required for your plan are provided to both current and new employees timely. We recommend that you keep track of the delivery date, method, and delivery list for every notice for which you are responsible. Check with your provider to confirm that they are meeting your needs with respect to delivery if they are providing assistance in this area.

Preliminary Contributions or Testing

Before you close your accounting books for the year, you may want to get an estimate from your TPA about your company contribution liability for the year. Or perhaps you want to make sure that you’re funding the maximum contribution available for your own 401(k) or 403(b) plans for the year. Payroll closes out on December 31 for many companies, so now is the time to make any necessary adjustments!

Data Gathering

Your TPA will need to understand what happened at your company during the year. Start gathering up employee records (hire/termination/rehire, birth date, etc.), compensation information (watch for special definitions or exclusions in your plan), and hours worked (if applicable). If any shareholders or partners were added or deleted, or if corporate officers changed, then gather that information. If there are any family members of the business owners working for the company, then let your TPA know (especially if the names are different).

While this list is in no way exhaustive, it’s at least a good starting point. If you have further questions or are looking for more advice on how to prepare for year-end, reach out to an experienced Wealth Enhancement Group specialist.

 

* This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

** This information was developed as a general guide to educate plan sponsors but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advice assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.

Brian Gregov

Brian Gregov

Director, Retirement Plan Consulting

CPFA, AIF®, QKA Brian leads a highly qualified team and oversees the retirement plan governance and fiduciary responsibilities for his clients, along with their administration, operations and design. He has more than 20 years of broad experience working in retirement solutions, including managing plans for large, multi-hundred-million-dollar corporations as well as small businesses. Brian supports his clients by designing customized retirement plans that are focused on specific goals and...Read More