Tax Planning

What is a 401(k) Plan Restatement? Every six years, the IRS requires that all qualified retirement plans be “restated.” Find out what this means for your plan. Every six years, the IRS requires all qualified retirement plans to update their plan documents to reflect recent legislative and regulatory changes. Some updates are made during the normal course of business through plan amendments, but others require more substantial rewriting of plan documents through a formal process known as a “plan restatement.” The IRS recently announced that the current two-year restatement window will begin on August 1, 2020 and close on July 31, 2022. Plan restatements are required by the IRS and not optional. Those who do not comply may be subject to significant IRS penalties. If you have a Betterment 401(k) plan, there is nothing you need to do now.  We will be in touch with you in early August and will do the heavy lifting to restate your plan document within the IRS window. Your restated plan document will be sent to you upon completion, and all you need to do is review it and execute it. It’s that simple! Plans with standard restatements will not incur any additional fees. Refer to FAQs specific to Betterment 401(k) plans. NOTE: If you work with a TPA, they will be handling the plan restatement, and we will coordinate with them. Read on for frequently asked questions about plan restatements. What is a plan restatement? A restatement is a complete re-writing of the plan document. It includes voluntary amendments that have been adopted since the last time the document was re-written, along with mandatory amendments to reflect additional legislative and regulatory changes. This upcoming mandatory restatement period for defined contribution plans is referred to as “Cycle 3” because it is the third required restatement that follows this six-year cycle. Is the current plan restatement mandatory or voluntary? The upcoming plan restatement is mandatory, even if your plan was amended for various reasons in the recent past. Plans that do not meet the July 31, 2022 restatement deadline will be subject to penalties, up to and including revocation of tax-favored status. This means contributions might not be deductible and would be immediately included as income to employees. Why do plans have to be restated? Retirement plans are governed by ever-changing laws and regulations imposed by Congress, the IRS, and the Department of Labor (DOL). To remain in compliance and current with those laws and regulations, plan documents must be updated from time to time. Some of these changes may be reflected through plan amendments, but it is impractical for plans to amend their documents for every new law or regulation. What has changed since the last restatement? The deadline for the last mandatory restatement was April 30, 2016, but it was based on documents approved by the IRS two years prior and only reflected legislative and regulatory updates through 2010. Since then, there have been a number of regulatory and legislative changes impacting retirement plans such as availability of plan forfeitures to offset certain additional types of company contributions and good faith amendments like the SECURE and CARES Acts. Haven’t we amended our plan to address these changes? Yes. Recognizing that plans would have to continuously update their plans to address changing regulations, the IRS allows for so-called “snap-on” amendments (also known as good faith amendments). However, it is more difficult to interpret a plan document (and therefore operate a plan consistent with the plan document) when there are so many amendments. A restatement cycle requires a full rewrite to incorporate “snap-on” amendments into the body of the document, often in greater detail. But we just restated our plan! Surely we don’t need to do it again? Unfortunately, all plans are subject to the restatement, regardless of how recently amendments may have been made. But we just started our plan! Surely we don’t need to go through this process? Unfortunately, the restatement cycle is dictated by the IRS without regard to a plan’s inception date. This process is required for all 401(k) plans and the document should be executed in a timely manner to remain compliant and qualified. Betterment specific FAQs How will Betterment help with the plan restatement process? Betterment works to keep your plan in compliance at all times, and this restatement process is no exception. We'll ensure that your plan document is properly drafted and delivered to you for execution. Once you execute the restated plan document, we will ensure that all plan provisions are accurately reflected in our recordkeeping system and provide you with the necessary disclosures for you to deliver to your participants. What does the plan restatement package include? The plan document restatement packages include the following, as applicable, based on your plan’s provisions: Adoption agreement Basic plan document that includes the detailed legal language describing each of the provisions Summary Plan Description (SPD) for distribution to plan participants Administrative policies for participant loans and qualified domestic relations orders (QDROs) Good faith amendments (currently, for the SECURE and CARES Acts) Will this restatement process take a lot of my time? Not at all! Betterment will ensure that your plan document is properly drafted and delivered to you for execution. However, you have several important roles: Inform Betterment about any organizational changes that may impact your 401(k) plan. Review your restated plan document once you receive it, especially the plan highlight and plan provision (such as eligibility requirements) sections, to be sure they accurately reflect your plan. Distribute the Summary Plan Description (SPD), to be provided to you after you execute the restated plan document, to your plan participants. Is there a fee for this plan restatement? Betterment’s work surrounding the recommended plan restatement will be provided on a complimentary basis. Any additional changes will trigger the standard amendment fee.

Everything You Need to Know about a Form 5500 What is Form 5500? If you’d like to get a general idea of what it takes to file a Form 5500 for a 401(k) plan, here are the top five things you need to know. As you can imagine, the Internal Revenue Service (IRS) and the Department of Labor (DOL) like to keep tabs on employee benefit plans to make sure everything is running smoothly and there are no signs of impropriety. One of the ways they do that is with Form 5500. You may be wondering: What is Form 5500? Well, Form 5500—otherwise known as the Annual Return/Report of Employee Benefit Plan—discloses details about the financial condition, investments, and operations of the plan. Not only for retirement plans, the IRS Form 5500 must be filed by the employer or plan administrator of any pension or welfare benefit plan covered by ERISA, including 401(k) plans, pension plans, medical plans, dental plans, and life insurance plans, among others. If you’re a Betterment client, you don’t need to worry about many of these Form 5500 details because we do the heavy lifting for you. But if you’d like to get a general idea of what it takes to file a Form 5500 for a 401(k) plan, here are the top five things you need to know. 1. There are three different versions of Form 5500—each with its own unique requirements. Betterment drafts a signature-ready Form 5500 on your behalf. But if you were to do it yourself, you would select from one of the following form types based on your plan type: Form 5500-EZ – If you have a one-participant 401(k) plan —also known as a “solo 401(k) plan”—that only covers you (and your spouse if applicable), you can file this form. Have a solo 401(k) plan with less than $250,000 in plan assets as of the last day of the plan year? No need to file a Form 5500-EZ (or any Form 5500 at all). Lucky you! Form 5500-SF– If you have a small 401(k) plan—which is defined as a plan that covers fewer than 100 participants on the first day of the plan year—you can file a simplified version of the Form 5500 if it also meets the following requirements: It satisfies the independent audit waiver requirements established by the DOL. It is 100% invested in eligible plan assets—such as mutual funds and variable annuities—with determinable fair values. It doesn’t hold employer securities. Form 5500– If you have a large 401(k) plan—which is defined as a plan that covers more than 100 participants—or a small 401(k) plan that doesn’t meet the Form 5500-EZ or Form 5500-SF filing requirements, you must file a long-form Form 5500. Unlike Form 5500-EZ and Form 5500-SF, Form 5500 is not a single-form return. Instead, you must file the form along with specific schedules and attachments, including: Schedule A -- Insurance information Schedule C -- Service provider information Schedule D -- Participating plan information Schedule G -- Financial transaction schedules Schedule H or I -- Financial information (Schedule I for small plan) Schedule R -- Retirement plan information Independent Audit Certain forms or attachments may not be required for your plan. Is your plan on the cusp of being a small (or large) plan? If your plan has between 80 and 120 participants on the first day of the plan year, you can benefit from the 80-120 Rule. The rule states that you can file the Form 5500 in the same category (i.e., small or large plan) as the prior year’s return. That’s good news, because it makes it possible for large retirement plans with between 100 and 120 participants to classify themselves as “small plans” and avoid the time and expense of completing the independent audit report. 2. You must file the Form 5500 by a certain due date (or file for an extension). You must file your plan’s Form 5500 by the last day of the seventh month following the end of the plan year. For example, if your plan year ends on December 31, you should file your Form 5500 by July 31 of the following year to avoid late fees and penalties. If you’re a Betterment client, you’ll receive your signature-ready Form 5500 with ample time to submit it. Plus, we’ll communicate with you frequently to ensure you hit the deadline. But if you need a little extra time, you can file for an extension using Form 5558—but you have to do it by the original deadline for the Form 5500. The extension affords you another two and a half months to file your form. (Using the prior example, that would give you until October 15 to get your form in order.) What if you happen to miss the Form 5500 filing deadline? If you miss the filing deadline, you’ll be subject to penalties from both the IRS and the DOL: The IRS penalty for late filing is $25 per day, up to a maximum of $15,000. The DOL penalty for late filing can run up to $1,100 per day, with no maximum. There are also additional penalties for plan sponsors that willfully decline to file. That said, through the DOL’s Delinquent Filer Voluntary Compliance Program (DFVCP), plan sponsors can avoid higher civil penalty assessments by satisfying the program’s requirements. Under this special program, the maximum penalty for a single late Form 5500 is $750 for small 401(k) plans and $2,000 for large 401(k) plans. The DFVCP also includes a “per plan” cap, which limits the penalty to $1,500 for small plans and $4,000 for large plans regardless of the number of late Form 5500s filed at the same time. 3. The Form 5500 filing process is done electronically in most cases. For your ease and convenience, Form 5500 and Form 5500-SF must be filed electronically using the DOL’s EFAST2  processing system. EFAST2 is accessible through the agency’s website or via vendors that integrate with the system. To ensure you can file your Form 5500 quickly, accurately, and securely, Betterment facilitates the filing for you. However, Form 5500-EZ can only be filed using a paper form. If you would prefer to file electronically, you can file Form 5500-SF instead (only answering the Form 5500-EZ questions). Whether you file electronically or via hard copy, remember to keep a signed copy of your Form 5500 and all of its schedules on file. Once you file Form 5500, your work isn’t quite done. You must also provide your employees with a Summary Annual Report (SAR), which describes the value of your plan’s assets, any administrative costs, and other details from your Form 5500 return. The SAR is due to participants within nine months after the end of the plan year. (If you file an extension for your Form 5500, the SAR deadline also extends to December 15.) For example, if your plan year ends on December 31 and you submitted your Form 5500 by July 31, you would need to deliver the SAR to your plan participants by September 30. While you can provide it as a hard copy or digitally, you’ll need participants’ prior consent to send it digitally. In addition, participants may request a copy of the plan’s full Form 5500 return at any time. As a public document, it’s accessible to anyone via the DOL website. 4. It’s easy to make mistakes on the Form 5500 (but we help you avoid them). As with any bureaucratic form, mistakes are common and may cause issues for your plan or your organization. Mistakes may include: Errors of omission such as forgetting to indicate the number of plan participants Errors of timing such as indicating a plan has been terminated because a resolution has been filed, yet there are still assets in the plan Errors of accuracy involving plan characteristic codes and reconciling financial information Errors of misinterpretation or lack of information such as whether there have been any accidental excess contributions above the federal limits or failure to report any missed contributions or late deposits Want to avoid making errors on your Form 5500? By completing the form on your behalf, all you need to do is review, sign, and submit—it’s as simple (and error-free) as that. If you’re considering doing it yourself, be on the lookout for these common errors (which could trigger an audit from the IRS): 5. Betterment drafts a signature-ready Form 5500 for you, including related schedules When it comes to Form 5500, Betterment does nearly all the work for you. Specifically, we: Prepare a signature-ready Form 5500 that has all the necessary information and related schedules Remind you of the submission deadline so you file it on time Guide you on how to file the Form 5500 (it only takes a few clicks) and make sure it’s accepted by the DOL Provide you with an SAR that’s ready for you to distribute to your participants

Saver’s Credit: Understanding the Retirement Savings Contribution Credit The Saver’s Credit is an excellent incentive for your employees to contribute to your retirement plan. Here’s how to answer the most frequently asked questions. What if your employees could receive a tax credit just for saving for retirement? It sounds too good to be true, but it actually is real! It’s called the Retirement Savings Contribution Credit, more commonly known as the Saver’s Credit. The Saver’s Credit is an excellent incentive for your employees to contribute to your retirement plan; however, they may not even know about it! In fact, only about 12% of eligible taxpayers claim this credit! Want to get the word out about the Saver’s Credit? Here’s how to answer your employees’ most frequently asked questions. 1.  What is the Retirement Savings Contribution Credit or Saver’s Credit? The Saver’s Credit gives a tax break to low- and moderate-income taxpayers who are saving for retirement. If you qualify for this special credit, it could reduce (or even eliminate) your income tax bill. That’s because it’s not a tax deduction, it’s a tax credit. Wondering what the difference is between the two? Here’s how it works: A tax deduction reduces your taxable income, and you pay taxes on the remaining taxable income. A tax credit directly reduces the amount of taxes you owe. That means it’s far more valuable than simply a tax deduction! The Saver’s Credit is non-refundable, which means it can only be subtracted from your tax liability—and potentially zero out your income tax bill—but it can’t provide you with extra money from the US Treasury. So if you owe $900 but you have a $1,000 Saver’s Credit, you won’t have to pay a dime to Uncle Sam (but the other $100 tax credit is lost). Plus, this special credit is above and beyond any tax deductions you may receive by making a 401(k) or Traditional IRA contribution! 2.  Am I eligible for the credit? You're eligible for the credit if you: Are age 18 or older Are not a full-time student Are not claimed as a dependent on another person’s return Made before-tax or after-tax retirement contributions to an eligible plan Met the Saver’s Credit adjusted gross income (AGI) qualifications (For the 2020 tax year, it’s less than $65,000 if you file “married filing jointly,” less than $48,750 if you file “head of household,” and less than $32,500 if you file “single,” “married filing separately,” or “qualifying widow(er).”) 3.  Which retirement accounts are eligible for the Saver’s Credit? You can potentially claim a Saver’s Credit for your eligible contributions if you contribute to one (or more) of the following popular plans: 401(k) IRA (Traditional IRA or Roth IRA) SIMPLE IRA 403(b) 457 plan For additional details on eligible account types, refer to the IRS website. What’s not eligible? If you received any employer contributions (such as a company match), you can’t claim those contributions for the credit. Rollover contributions (money that you transferred from another retirement plan) also aren’t eligible for the Saver’s Credit. 4.  How much is the credit worth? The credit amount is calculated on a sliding scale. Depending upon your income (as reported on your Form 1040 series return), you’ll receive a tax credit of 50%, 20% or 10% of your qualified retirement savings contributions. The maximum contribution amount that may qualify for the credit is $2,000 ($4,000 if married filing jointly), which means your maximum credit is $1,000 ($2,000 if married filing jointly). As you’ll see in the chart below, the income brackets vary depending upon your tax filing status: Married filing jointly, head of household, single, married filing separately, or qualifying widow(er). Review the following charts for information on the specific income brackets and credits for tax year 2019 and 2020. 2019 Savers Credit Credit Rate Married Filing Jointly Head of Household All Other Filers* 50% of your contribution AGI not more than $38,500 AGI not more than $28,875 AGI not more than $19,250 20% of your contribution $38,501 - $41,500 $28,876 - $31,125 $19,251 - $20,750 10% of your contribution $41,501 - $64,000 $31,126 - $48,000 $20,751 - $32,000 0% of your contribution more than $64,000 more than $48,000 more than $32,000   2020 Saver’s Credit Credit Rate Married Filing Jointly Head of Household All Other Filers* 50% of your contribution AGI not more than $39,000 AGI not more than $29,250 AGI not more than $19,500 20% of your contribution $39,001 - $42,500 $29,250 - $31,875 $19,501 - $21,250 10% of your contribution $42,501 - $65,000 $31,876 - $48,750 $21,251 - $32,500 0% of your contribution more than $65,000 more than $48,750 more than $32,500   *Single, married filing separately, or qualifying widow(er) 5.  Can you give me an example of how the Saver’s Credit works in the real world? Take these scenarios for example: Sam and Jil Sam and Jill have been married for 10 years. Sam was unemployed in 2020, and Jill earned $57,000 from her job at the bank. Jill contributed $2,000 to her 401(k) plan in 2020. After deducting her 401(k) contribution, their AGI on their joint return was $55,000. According to the 2020 Saver’s Credit chart, couples who file as “married filing jointly” and have an AGI between $42,501 and $65,000, may claim a tax credit, which is equal to 10% of their retirement contribution. Therefore, Sam and Jill may claim a 10% Saver’s Credit—$200—for Jill’s $2,000 401(k) plan contribution. Monica A recent college grad, Monica earned $32,000 in 2020. To help save for her future, she contributed $2,000 to her 401(k). After deducting her contribution, her AGI on her tax return was $30,000. According to the 2020 Saver’s Credit chart, a person who files as “single” and has an AGI between $21,251 and $32,500 may claim a tax credit that is equal to 10% of their retirement contribution. Therefore, Monica may claim a 10% Saver’s Credit—$200—for her $2,000 401(k) contribution. 6.  I think I’m eligible for the Saver’s Credit. How do I claim it? To claim the credit, use tax Form 8880, “Credit for Qualified Retirement Savings Contributions.” If you have any questions about how to claim this credit, talk to your tax accountant. Subhead: Betterment offers the support your employees need As an employer, you can help your employees pursue their retirement goals—and Betterment can help. As a full-service plan provider, Betterment will do the heavy lifting for you from onboarding to ongoing administration. We’re also here for your employees every step of the way. Whether they’re wondering if they’re eligible for the Saver’s Credit or debating how to invest, we offer personalized advice to help them make smarter decisions. Plus, we do it all for a fraction of the cost of most providers.