Adopting A Company 401k To Maximize Tax Savings With Guideline & Gusto

401k… that seems like three numbers and a little letter, and it could be so intimidating to start talking about a 401k. Not only for yourself as a business owner or a visionary, or however you view yourself inside your business, but then to adopt a company 401k. Especially if you're a two person team with your first W2 team member. Maybe you have a 1099 contractor that at some point you might consider moving into a W2 position because it's time to do so. 

Even if you're a one person team, a business owner, or a husband and wife team, a company 401k could be in your future. You definitely should start thinking about those things when it comes to maximizing your tax savings and keeping more of the money you earn.

If retirement and being aggressive towards retirement is something that's on your radar or something that you're going to want to do in the future then there's no time like the present. Understanding what that means and what partners you should consider when it's time to start putting a 401k in place is important. 

If you're exploring retirement or you're currently doing things in your business to maximize your savings and minimize your taxes, you probably need to get the lay of the land about what options are available to you based on the entity that you're currently engaged in.

What I will tell you is that seasons change. As you grow, you can't afford not to keep having these conversations, assessing your profit and assessing your tax situation because there's no one size fits all. There's a time and a place to start these conversations and then keep moving the needle on them to maximize it in every way for you.

Triple Scoops

The single scoop in terms of the profit decision is to know about it, but then bury your head in the sand and not have a conversation about it ever again, thinking that it's way out of your reach or not possible for you. 

The double scoop is that it's on your radar and you're having some casual conversations, but you're avoiding the decisions or actually looking at the numbers to determine if this is the right path and the right season for you. 

The triple scoop profit decision is that you're going to make sure that you're leveraging your time, energy, and money to maximize how you can keep more of your money planned for your future and minimize the taxes that you're paying overall and understanding what that looks like for you as a business owner. 

If you have a spouse, what does that look like for you and your family as a business partnership and couple? Then as you grow and add team members to your business, what does that look like? What does it look like in each respective season? 

This is why we say tax is a service, not an event because these things happen all year round. They need to be talked about throughout the year, and we need to make sure that we're focused on those things with a company 401k. The savings for you could be substantial depending on how your financials look and where you are at in the season of your life. In addition to choosing to adopt a company 401k, there are partners that we found over the years that we personally use in our business with our team.

The Best Partners

We use Guideline and Gusto with our clients because we believe they are the best partners on the market. They offer a wide range of 401k products such as 401ks, SEP IRAs, and personal IRAs. In addition to that, we love, love, love Gusto as our payroll partner and they integrate and play very well with Guideline.

Their fees are very competitive. They provide outstanding customer service from our perspective and they do a great job at making sure that they're taking care of their clients. We have a great relationship with both of these companies so much so that we use them in our own business.

It's our perspective that we can't speak to what we don't use. So we make it very hard on ourselves to not recommend anybody unless we have direct firsthand experience or that we know someone who's had direct firsthand experience that we have a relationship with.

Mindset Shifts

In addition to making the big decision about adopting a company 401k, it then becomes a question of how am I going to implement it? What does the implementation look like? What are the fees associated with this? What's the investment that I'm gonna have to make? 

Oftentimes one of the first things that comes up is clients will immediately say, I can't afford it before they even hear the numbers or hear the data. They'll say things like, I just can't afford that. And what I want to say to you right now is if you find yourself saying my business is not big enough for this, or I can't afford that, or that fee is too much, what you're doing right now in terms of your decision making is you're up in your mind doing math. You're processing it through a lens of emotion. You actually don't have the data around what the right decision is for adopting a company 401k. This is a huge decision. It has a lot of moving parts to it. There is also a lot of impact, not only for you as the business owner, but the company itself. 

Adopting a company 401k impacts your cash flow, your profitability and your taxes. Not only does it impact you as a business owner and the business, it impacts the employees now and in the future. You can't do it without the facts and you don't have facts if you don't have data. When we're mentally processing the napkin math, and we're saying things like, that's not for me right now, I'm barely getting by.

Those are some mindset things that we have to make some shifts on. I find the most effective way to walk through those mindset issues is to get in the ring with the partner that you've chosen to grow your business with and to ask the questions because maybe right now adopting a company 401k is not the right time and it's not the right season, but you could literally be like one decision away from that being a reality.

The mindset games that you're playing in your head around what's possible and what's not possible, what should get the attention or shouldn't get the attention. I often find that business owners, when they're busy sitting in their seat and running their business, think that this is the kind of thing that can wait until a different time. 

Creating Runway

The truth is yes, we always have time to make the right call, but we gotta understand that we also need a runway. For example, at the time that I'm writing this, it's a pretty June day. By the time we get through the month of September, it's gonna be too late for a company with employees to implement a safe Harbor 401k and take advantage of any 401k and tax opportunities in that business because it takes roughly about 60 days to thoughtfully implement a company 401k. 

You're gonna need at least 30 to 45 days to really make sure the partners you're relying on are helping you analyze if this is the right move for you, helping you understand all the compliance things that you need to know and helping you understand what today and tomorrow potentially look like.

It's not about making sure you hit the mark, it's making sure you predict what's coming and that you get as close to the mark as you can, because we don't grow perfect. We don't decide perfect. But what we do need the cure for with speed is always having that runway. When we can have the conversation about things like adopting a company 401k early, then we can know what the runway needs to look like. We want to actually get the plane in the air and ensure that the plane doesn't crash. Sometimes we find out we have to sit on the tarmac and we can't even get the plane off the ground until the next year. We don't want to miss opportunities because we did not make the time we should have made.

Wounds and Scars

I'm speaking from the scar here and a little bit from the wound. I always like to think about that in asking myself, am I speaking from the scar or the wound? There is a great person, Tina Forsyth, who coached me for a few years. She had a wonderful guest who had spoken to our community. One of the most impactful things he said to me at the time, and I'll never forget it because we're always learning lessons, is that we want to speak from the scar, not from the wound. When wounds are fresh and we have gone through a season of pain where our lessons were really hard, we tend to be a little scared, fearful or even doubting. The reason that I bring this up and why it's relevant to finances is because 401ks are a big deal.

Now, if somebody's super casual and says things like  just put in a 401k, that's the same response that someone might say with you having an LLC. They’re going to say go ahead and add an S-Corp. Then they realized two years later, they were supposed to have payroll and corporate minutes. There were just so many things they could have done to make that S-Corp properly sing and be compliant and they didn't do any of it.

I tend not to be really super casual when it comes to things like this and I like to dive deep into the pond around the mental battle that we're having before we get to actually the decision making that needs to happen. You really need to make sure that you're adopting a company 401k at the right time with the facts and the data. Be sure that you're factoring you in as the whole person. You should also factor in your partner, your financial advisor or partnership team. They should be helping you create the triple win or the triple scoops as we like to say. 

Now, a few other things to remember about Guideline and Gusto. Guideline is the 401k provider. Gusto is the payroll processor. Both are really needed to adopt a 401k. I can tell you there's lots of ways to implement these things. There's lots of ways to handle payroll and deal with payroll. I just find these two partners to be the most consistent, the most reliable.

You can put it into a process that you can rely on, and that's extremely important because you don't want to mess up how your 401k walks and talks. You will want to make sure the systems you use talk to one another, that they're mobile friendly, they have great customer service and that you're using a partner, like The Bottom Line®, who believes in both and who knows how to navigate the process. 

The Fees

Here's what you need to know. When you decide to adopt a 401k, there are fees involved. And if anybody's telling you that you can do it fee-free, that's absolutely not true. There is a cost. It's whether the cost is communicated to you upfront, or if it's buried in the fine print against the fees that you pay when you get your statements about the performance of your 401k. 

For example, with Guideline, they have three separate plans and they charge a flat rate per month and then they charge a participant fee per month. So like a core plan for example, starts at $49 a month and then $8 per active participant. 

What is an active participant? They are actually contributing or the company is contributing to the 401k and then based on things that you want to add such as the flexibility to pick and choose your features based on the goals, or if you want to customize things, it can go as high as $129 a month. The flat rate stays at $8 per active participant. This was written in June of 2022. I don't want you to hold me to that pricing because as we know things change, so the pricing could shift, but it's really important that you understand the pricing and fee arrangement.

If you have a 401k, whether it's a solo 401k, a company safe Harbor 401k, or a 401k in general, you should understand the amount of money that you're going to pay to keep the plan active. What I really love about Guideline is they have no plan termination fees, no distribution fees, no rollover fees, no loan fees and no prep fees.

Meeting You Where You Are

Guideline does recognize where we are at with the future of business, online business and virtual business. They're meeting the modern entrepreneur where they are and realize all of those things that were scary about adopting a 401k in all the years before. They've eliminated all that, which is straightforward, upfront pricing and I love that there is no bill shock, dread or worry. You don't have to worry about those hidden fees and things like that. If there are any additional fees, you should make sure the company's outlining all those fees and you understand and know what it's going to cost you in order to make sure that you're taking care of everything. Now that doesn't mean there's not necessarily an account fee. Basically they're charging an account fee as a percentage of the fund that they're managing guidelines.

We found that it's some of the lowest in the industry, even going as low as 0.08%. And so it's really important to understand those fees and what those are, what that looks like and they're doing it all for you. They're your administrator and they're taking care of things and setting up the plan based on the information that you provide to them. This is where I feel like people get tripped up, including myself about how to answer the questions. The plan set up is a series of questions. They're not super hard questions, but they're questions that we're not used to hearing every day or understanding really what it means, because we're not living in that financial world for 401ks.

Designing Your Plan

You've got to design your plan, meaning what are the parameters or conditions or terms of the plan that has to be in place. You're going to be asked questions like, do you know what that default deferral rate is going to be. Is it gonna be one to 10%? What's the minimum age requirement in the plan? Are they gonna be 18, 19, 20 or 21 years old? What's their minimum service requirement? It could be on the first day of hire after three months, six months or 12 months. What's really important is that those things are going to determine who the participants are and who the eligible participants are and that's going to impact the fees. Then of course, the contributions that you're gonna be making on behalf of the employees.

Just a reminder, if you are in an LLC, S Corp or a C Corp as a business owner, or you are an employee of the S Corp, and then you are also a shareholder and we want to make sure that everything's in place so that you are recognized as an employee and you're complying as an employee and not blending the two. As an employee of the company, you get to participate in the company's 401k as an employee. You also receive the benefit of anything that the company does in terms of matching contribution or profit sharing. When you create your plan design, this determines how aggressively your 401k is going to build and grow, and the contributions you're gonna have to make, not only for yourself as an employee, but for any employees you have in the future.

You're also going to make decisions about employer matching or non-elective contributions. And I myself get tripped up when those kinds of questions get asked. The non-elective contribution is where you are deciding for every person who is eligible to participate in the plan, meaning a minimum age and a minimum service requirement. Regardless of whether they want to participate or not with their own money, you're gonna agree to just put a percentage of their compensation into the plan on their behalf. 

There is also the employer matching and the limits that you choose to do are going to determine whether the plan is a safe Harbor plan. Meaning that it's going to automatically pass any non-discrimination testing. What you don't want is to create an employee benefit like a 401k that's only going to benefit highly compensated employees, which include yourself as an employee in the business and you want to avoid that

Making sure that you have enough time to implement the program before the end of the year is also important. A safe Harbor 401k should be implemented by September of each year, because then that gives them plenty of time to make sure all of the compliances are in place, they take care of on your behalf, and have the proper time to happen. So understanding what your employer matching or non-elective contribution looks like is important. You should also decide if you are going to offer profit sharing. You can look to change your plan at certain intervals of time as well.

Integrations With Your Payroll Provider

You have to make sure that it's integrated with your payroll provider, because the last thing you wanna do is manually service. You have to make sure that the money you take out of an employee's paycheck is getting to your 401k provider timely. If you miss making a timely payment with someone else's money there could be big penalties and it could put your plan at risk and it could cost you a lot more money. Having an integrated payroll solution is really important. 

When we start working with clients for the first time, if they've self-implemented a 401k, they didn't even realize they needed to run 401k through payroll, they had an employee participant in contribution that was part of their wages and that any employer matching needed to be represented appropriately.

The timeliness of those payments and things needed to happen based on when things were initiated in payroll. There tends to be a lot of things that we have to work through, fix, or try to transition with a client when we see that it has not been properly set up and that they don't really fully understand what they've done.

Getting the understanding of what needs to happen and making sure you're handling things timely and appropriately, and that limits are being calculated for those profit sharing or employer matching contributions, especially when you have a team is incredibly important. 

Some other things that you might need to know or understand is the word safe Harbor that I'm talking about. A safe Harbor is basically if you meet these conditions though, you're not gonna have any trouble meeting all of these different tests that you have to go through for 401k. It's the contribution that you have to care about and making sure that everyone is being treated equally in the plan based on the deferral or the matching that you've created for them. 

You can do basic matching, enhanced matching or non-elective contribution and making sure those limits are being adhered to, and those deadlines and things are happening with the safe Harbor deadline.


For new plans, October 1st is the final date. That's why I always say you have to get this going before September and it takes up to 60 days. This is where runway is your friend. It's important to know mid-August is the deadline for setting up that guideline safe Harbor 401k, and September the 30 day notice to be sent and October 1st, the safe Harbor is effective. So again, you're gonna need that 60 day runway just to get that plan in place for October 1. It's really important to make sure you understand that and that there is a provision about the deadline for existing plans to do safe Harbor matching.

About mid-November around the 20th, you're gonna get a deadline for requesting the addition of a safe Harbor matching. On December 1st, the 30 day notice has to go to the employees and on January 1st, the provision for safe Harbor can take place. What that means, if you're looking to make plan changes and make sure that maybe you're in a current 401k that's not a safe Harbor, but you want to turn it into a safe Harbor. You're going to have to go about 60 days out from the effective date to make sure that that provision is in place. So again, the runway is the cure for speed and making sure that you get there on time without any hiccups. Then everybody knows and understands the expectations.

What's really nice about Guideline is they also handle those employee notices. They walk you through any changes you might wanna make midyear so that you are compliant and that you don't do things that you shouldn't do, or that if you're trying to make changes, you know exactly what you need to do. They are helping satisfy all those requirements and rules in order to make sure that it's handled with compliance. I actually love that. It gives me peace of mind. It gives us peace of mind that it's really kind of a hands off process. Once you get the process going and you have the right partners in place when it comes to adopting a company with 401k. 

What I'd like to say about the tax savings piece is remember that payroll is important when you have a 401k in place. I'm not saying that 401ks always require a regimented payroll, but the whole point of adopting a company 401k is that you're receiving benefits as an employee. So this is absolutely more common when it comes to an LLC tax as an Corp or an S-Corp or a C-Corp situation, not to say that you can't take advantage of a solo 401k.

In any other type of situation or a SEP IRA. This is why you need the right partner in place so you get the right type of plan based on how you're structured and how your finances are going. There's the employee participant contribution that you can make.

You can do an employer match of up to 25% of the wages typically. There's other calculations depending on the entity that you can do. I'm just giving you the very straightforward kind of scenario where payroll is in place. It's important to have your reasonable compensation surveys for payroll done, at least once a year, from our perspective, so that you're really dialing in payroll as an officer of an S-Corp or a shareholder receiving wages.

There's no better payroll partner on the planet than Gusto. We believe that wholeheartedly. Making sure it's integrated properly with your 401k and all your contributions and things like that are being deducted and submitted timely and taken care of and reported properly. Both of those providers and partners take care of all of that for you. I couldn't be happier to be in business with Guideline and Gusto at The Bottom Line®.

Don’t Do It Alone

I would say don't do it alone. My friend, Trivinia Barber, over at Priority VA always says, don't do it alone. This is definitely an area I would say, don't do alone. You may feel overwhelmed by your options because everyone has an opinion about what works best and what the best idea is and the phases are really important.

When it comes to determining where the best place is to invest your time, energy, and money, don't just look for the cheapest cat in town, really understand what you're doing and what you're getting into. Do you have the right partner now and in the future and is your system and your structure to make sure that you're not going to have a lot of extra headaches that maybe you don't know about in the beginning that you have to tend with or comply with.

If you want to learn more about adopting a 401k, check out Episode 094: Adopting A Company 401k To Maximize Tax Savings With Guideline & Gusto