Starting a 401(k) plan for your small business is a fantastic way to attract and retain top talent, boost employee morale, and even enjoy some significant tax benefits for your company. Gusto, with its integrated payroll and HR platform, makes setting up and managing a 401(k) much simpler than traditional methods.
Ready to empower your employees' financial future and simplify your benefits administration? Let's dive in!
Setting Up a 401(k) in Gusto: A Comprehensive Guide
This guide will walk you through the process of setting up a 401(k) plan within Gusto, focusing on their integrated partner solutions, which offer the most streamlined experience.
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| How To Set Up 401k In Gusto |
Step 1: Discover Your 401(k) Needs and Choose a Partner (Let's Get You Started!)
Before you even log into Gusto, let's figure out what kind of 401(k) plan best suits your business and employees. Are you a small startup or a growing mid-size company? Do you want to offer employer matching? These are key considerations.
Gusto doesn't directly offer its own 401(k) plans. Instead, it partners with leading 401(k) providers like Guideline, Betterment, Human Interest, and Vestwell. This integration is a huge advantage, as it automates many of the administrative tasks typically associated with 401(k)s.
Sub-heading: Understanding Your Options
Integrated Partners: These are your best bet for a seamless experience. Gusto automatically syncs payroll deductions, employee data, and often even facilitates fund transfers, significantly reducing your manual workload.
Consider: Guideline, Betterment, Human Interest, Vestwell. Each has its own pricing structure, plan design options, and investment philosophies. It's wise to visit their websites directly to compare.
Manual Setup (for existing plans): If you already have a 401(k) plan with a provider not integrated with Gusto, you can still set up manual payroll deductions. However, this means more administrative effort on your part for reconciliation and fund transfers.
Sub-heading: Key Questions to Ask When Choosing a Provider
Cost: What are the setup fees, ongoing administrative fees, and per-participant fees? Are there hidden costs or transaction fees? (Some providers, like Human Interest, pride themselves on eliminating many transaction fees.)
Plan Design: What types of contributions are allowed (pre-tax, Roth, employer match, profit-sharing)? What are the eligibility requirements for employees (e.g., waiting periods, hours worked)?
Fiduciary Responsibility: Who takes on the fiduciary responsibility? Some providers act as 3(16) administrators and/or 3(38) investment managers, which can significantly reduce your liability as an employer.
Employee Experience: How easy is it for employees to enroll, manage their investments, and access support? Do they offer investment guidance?
Compliance: How do they help with compliance, including non-discrimination testing and Form 5500 filings?
Once you have a good idea of your needs and have explored the integrated partners, you're ready for the next step.
Tip: Don’t skip the details — they matter.
Step 2: Initiating the Integration within Your Gusto Account
Now it's time to connect your chosen 401(k) provider with Gusto. You'll need to be a Primary Admin or Full Access Admin on your Gusto account to complete these steps.
Sub-heading: Connecting to an Integrated Partner
Log in to your Gusto employer portal.
Navigate to the "Benefits" tab on the left-hand menu.
Under "Financial Health" (or a similar section), look for "Traditional or Roth 401(k)" and click on it.
You'll likely see options to "Set up a new 401(k)" or "Add existing plan."
If setting up a new plan: Find your chosen integrated partner (e.g., Guideline, Human Interest) and click "See pricing plans" or "Get started." This will typically direct you to their platform to finalize the plan setup.
If integrating an existing plan: Click "Add existing plan" and select your provider.
Follow the on-screen prompts to authorize the connection between Gusto and your 401(k) provider. This usually involves giving Gusto permission to share necessary employee and payroll data with the 401(k) provider.
Sub-heading: Setting Up Manual Deductions (for non-integrated plans)
If you're managing a 401(k) plan with a provider not directly integrated with Gusto, you'll need to set up manual deductions.
Log in to your Gusto admin account.
Go to the Benefits section.
Under "Financial Health," click "Traditional or Roth 401(k)."
Select "Add existing plan" and then choose "Continue to manage your 401(k) manually instead."
Enter a descriptive name for the benefit (e.g., "Company Name 401k"). This will appear on employee paystubs.
Choose the benefit type: Specify if it's a pre-tax (Traditional) 401(k) or a Roth 401(k). If you offer both, you'll set them up one at a time.
Indicate employee deduction per pay period: Choose whether contributions are a fixed dollar amount or a percentage of wages. Enter the default amount or percentage.
Specify deduction limits: Gusto allows you to indicate if the plan uses standard deduction limits or special catch-up limits for employees aged 50 and over.
In the "Annual maximum contribution" section, you can set a cap for your company's annual contribution per employee.
Click "Save & continue."
Select which employees should be deducted for this benefit.
Click "Save."
Important: You'll need to manually deposit the collected funds to your 401(k) provider after each payroll run. Gusto will withhold and report, but not transfer, these funds for manual setups.
Step 3: Configuring Your 401(k) Plan Details
Once the integration is initiated (or manual setup begun), you'll need to configure the specific details of your 401(k) plan.
Sub-heading: Plan Rules and Eligibility
Eligibility Requirements: Set up who is eligible for the plan. This includes things like:
Minimum age
Minimum hours worked (e.g., 1,000 hours in a 12-month period)
Length of service (e.g., 1 year of service)
Note: Gusto often automatically sends eligible new hires' information to integrated providers.
Enrollment: Determine if your plan has automatic enrollment or if employees need to actively opt-in.
Vesting Schedule: If you offer employer contributions, define the vesting schedule (how long employees must work before employer contributions become fully theirs).
Sub-heading: Company Contributions (Matching or Profit-Sharing)
QuickTip: Pay close attention to transitions.
If your plan includes employer contributions (matching or profit-sharing), you'll configure these details.
Matching contributions: Specify the percentage of employee contributions you will match.
Nonelective contributions: These are made regardless of employee deferrals.
For integrated plans: Your chosen 401(k) provider will guide you through setting up these contributions within their platform. These will then sync with Gusto.
For manual setups: You'll need to track and manage these contributions outside of Gusto's automated payroll, then manually deposit them.
Step 4: Employee Onboarding and Communication
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A crucial step is to inform your employees about the new 401(k) plan and guide them through enrollment.
Sub-heading: Announcing the Plan
Clearly communicate the benefits: Highlight how the 401(k) can help them save for retirement, the potential for employer contributions, and tax advantages.
Provide key dates: Inform them about eligibility dates, enrollment periods, and when deductions will begin.
Introduce the provider: If using an integrated partner, explain who the 401(k) provider is (e.g., Guideline, Human Interest) and how employees can access their accounts directly through the provider's portal.
Sub-heading: Guiding Employee Enrollment
For integrated plans: Employees typically receive an email from the 401(k) provider with instructions on how to log in, learn about the plan, and make their deferral elections (e.g., how much to contribute and to which investment options). Gusto will automatically sync these elections for payroll.
For manual plans: You'll need to collect employee deferral elections directly and input them into Gusto.
Emphasize: Employees can usually view their 401(k) plan details and contribution history directly within their Gusto employee portal. However, detailed account balances and investment changes will be managed on the 401(k) provider's website.
Step 5: Ongoing Management and Compliance
Once your 401(k) is set up, Gusto and its integrated partners greatly simplify ongoing administration.
Sub-heading: Payroll Integration and Deductions
Automatic Deductions: With an integrated plan, Gusto automatically deducts employee contributions and records company contributions when you run payroll.
Fund Transfers: In most integrated scenarios, the 401(k) provider will debit your company bank account for both employee and employer contributions shortly after the check date, and then invest the funds. This largely eliminates the need for manual fund transfers on your end.
Employee Changes: When employees change their deferral rates on the 401(k) provider's site, these changes will typically sync to Gusto within a few pay periods. Similarly, new hires, terminations, and employee information updates in Gusto will sync to the 401(k) provider.
Sub-heading: Compliance and Reporting
Tip: Train your eye to catch repeated ideas.
Non-discrimination Testing: Integrated 401(k) providers often handle or assist with annual non-discrimination testing (e.g., ADP, ACP, Top-Heavy tests) to ensure the plan benefits all employees fairly, not just highly compensated ones. Safe Harbor 401(k) plans can even exempt you from some of these tests in exchange for mandatory employer contributions.
Form 5500 Filings: For plans with fewer than 100 participants, many integrated providers (like Guideline) will file Form 5500 on your company's behalf, saving you significant administrative burden.
IRS Limits: Gusto automatically stops deductions when an employee reaches the IRS annual contribution limit, helping you stay compliant.
Staying Updated: Stay informed about IRS contribution limits and plan regulations, although your 401(k) provider will generally guide you.
Step 6: Reviewing and Adjusting Your Plan
Regularly review your 401(k) plan to ensure it continues to meet your company's and employees' needs.
Sub-heading: Checking Contributions and Employee Data
In Gusto: You can review employee deferral amounts by going to the Benefits section, selecting your 401(k) tile, and clicking the "Employees" tab.
On Provider's Portal: For detailed contribution history, balances, and investment performance, you and your employees will log directly into the 401(k) provider's portal.
Updating Deductions: If you need to change an employee's deduction or company contribution, you can usually do so in their employee profile under the "Benefits" tab in Gusto, or directly with your 401(k) provider if integrated.
Sub-heading: Considering Plan Changes
As your business grows, you might want to adjust your plan design, such as increasing employer matching contributions or adding new eligibility groups. Your 401(k) provider is the best resource for discussing and implementing these changes.
Setting up a 401(k) in Gusto is a smart investment in your team's financial well-being and a testament to your company's commitment to its employees. By following these steps, you can establish a valuable benefit with relative ease.
10 Related FAQ Questions
Here are 10 frequently asked questions about setting up a 401(k) in Gusto, with quick answers:
How to choose the right 401(k) provider for my business through Gusto?
Quick Answer: Research Gusto's integrated partners (Guideline, Betterment, Human Interest, Vestwell) considering factors like cost, plan design options, fiduciary support, and employee experience. Visit their individual websites for detailed comparisons.
Tip: Scroll slowly when the content gets detailed.
How to determine employee eligibility for a 401(k) plan in Gusto?
Quick Answer: When setting up your plan, you'll define eligibility rules based on factors like age, length of service, and hours worked. Gusto helps track these for eligible employees.
How to manage employer matching contributions with Gusto's 401(k) integration?
Quick Answer: For integrated plans, you'll set up your matching scheme directly with your chosen 401(k) provider, and Gusto will automatically deduct and record these contributions during payroll.
How to ensure my 401(k) plan remains compliant with IRS regulations when using Gusto?
Quick Answer: Gusto's integrated 401(k) partners typically handle or assist with compliance tasks like non-discrimination testing and Form 5500 filings. Gusto also automatically enforces IRS contribution limits.
How to help employees enroll and manage their 401(k) accounts once set up in Gusto?
Quick Answer: Integrated providers send employees direct instructions for online enrollment and account management. Employees can also view basic plan details and contribution history within their Gusto portal.
How to handle 401(k) contributions if I have a non-integrated plan with Gusto?
Quick Answer: You'll set up manual deductions in Gusto, which will withhold the funds. You'll then be responsible for manually transferring these funds to your 401(k) provider after each payroll run.
How to update employee 401(k) deferral rates in Gusto?
Quick Answer: For integrated plans, employees typically change their deferrals directly on their 401(k) provider's website, and these changes will sync to Gusto. For manual plans, you'll need to update the deduction details in the employee's benefits tab in Gusto.
How to understand the costs associated with Gusto's 401(k) offerings?
Quick Answer: Gusto's base payroll plan has a monthly fee plus a per-person charge. The 401(k) specific fees are charged by the integrated 401(k) provider and typically include setup fees, monthly administrative fees, and per-participant fees.
How to leverage 401(k) tax credits as a small business using Gusto?
Quick Answer: Eligible businesses can claim tax credits for starting a new 401(k) plan. Gusto may assist in generating Form 8881 for these credits, especially with certain integrated partners like Guideline.
How to troubleshoot if 401(k) deductions aren't appearing correctly on employee paystubs in Gusto?
Quick Answer: First, verify that the plan has officially started and the employee is eligible. Then, check the deduction settings in Gusto and cross-reference with the 401(k) provider's records. If issues persist, contact Gusto support or your 401(k) provider directly.
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