How to Start a 401(k) for Your Small Business

Offering retirement benefits doesn’t need to be complicated.

If you run a business you’re probably constantly thinking about its financial health—how much money it’s earning and spending. But another aspect of financial health that may be of concern is the financial health of your employees, and how to start a 401(k) for your small business.

Retirement plans can offer significant benefits to your employees and help you offer competitive benefits. But employees of small businesses are least likely to have access to one. Just over half of the small and mid-sized businesses included in a Pew Research study offer retirement plan benefits to their employees.

If you’re considering including a retirement plan on your list of benefits, a 401(k) plan might be your best bet. In this article, we’ll cover different 401(k) plan options as well as how to get started offering this benefit to your employees.

Why a Retirement Plan Is a Smart Move

A 401(k) plan can be a very powerful benefit for your company and your employees. But offering a 401(k) plan is a big commitment. How do you know if it’s right for your company?

Here are some reasons starting a 401(k) plan is a smart move.

Attract and retain employees: It can be difficult to find and keep the right people for your business. A 401(k) might help. According to a Glassdoor study, 401(k) plans are one of the top five benefits employees care about. Deferred tax growth: A traditional 401(k) plan offers deferred tax growth to help fuel retirement. If you participate in your plan (which you should!) that means both you and your employees are reaping that benefit. Tax deductions: Not only can a 401(k) plan be good for your financial health, it can be good for your business health. Any contributions that you make to your employees’ plan are tax-deductible. And your business may even be eligible for a $500 tax credit for the first three years after setting up your plan. Offer solutions: 48% of people 55 and over have nothing set aside in a retirement plan. This isn’t good for anyone. Offering a retirement plan can help your employees protect their financial future and show that you care about their wellbeing. Is a 401k Right for Your Business?

When it comes to retirement plans, there are a lot of options. You can choose from a number of different plans if you want to offer retirement benefits to your employees. Here are some of the most popular options:

Traditional 401(k): The traditional 401(k) is a retirement plan that offers flexibility. It is available to businesses of any size and allows employers to contribute to employees’ plans, match contributions, or do neither. There is annual testing that is required for these plans, to ensure that the benefits are equitably offered to all employees.

Safe Harbor 401(k): Under a safe harbor 401(k) plan, businesses will have less flexibility but won’t be subject to the annual testing requirements that they would be with a traditional 401(k) plan. A notable feature of the safe harbor plan is you are required to make employer contributions and they vest immediately when they are made.

One-participant 401(k) Plan: Also known as a 401(k) plan, a one-participant 401(k) plan is available to business owners with no employees,

Continue reading

This post was originally published on this site