Uniglobal can help you and your organization prepare for what's next.
Got a SEP-IRA? Wondering how to convert it to a 401(k)? The short answer is: you can't. However, you can discontinue the SEP IRA and start a new 401(k) plan and we'll tell you how to do it! But first, a few words on SEP IRAs vs 401(k) plans:
Employers offering SEP IRAs for their employees realize the value of saving for retirement. A SEP IRA is easy to establish with a minimal amount of administrative work. For these reasons it can be an attractive option for jump starting retirement savings.
The downside of offering a SEP-IRA is there is very little room for customization.
Within a SEP-IRA only Employer contributions are permitted. In addition, the rules governing those contributions are not as flexible as they would be in a 401(k) Plan.
A SEP-IRA has specific options for participant distributions.
Employers looking for a more flexible custom option for their retirement goals should consider establishing a 401(k) plan.
You'll have much more flexibility with contributions in a 401(k) over a SEP-IRA. To start, employees are permitted to contribute. Here are a few highlights around contributions and their options within a 401(k) plan:
(Note: these are just a few of many options, connect with us for more insight!)
Beyond the standard distributable events (termination, retirement, death, and disability), you may permit other types of distributions in your retirement plan:
We've got good news all around! First, if you haven't contributed to the SEP for this calendar/tax year, you could establish a 401(k) now for 2021. Second, if you're working with a financial advisor let them know you'd like to explore options for a 401(k) plan this year.
Once you've decided that your business has outgrown the limitations of a SEP, contact the financial institution to inform them that you will no longer be contributing to the SEP and you want to terminate the contract/agreement. Also, consider notifying employees that you have discontinued the plan.
Starting a 401(k) is easier than you think, but a lot of time and care should go into the establishment - after all, this is not only your future but the future of your employees.