How Do I Start a 401(k) for My Small Business?

The options for workers to save up for their post-retirement lives have gradually dwindled over the years. As state- and employer-provided options have slowly disappeared, employees have been left to depend on themselves to ensure their financial security in their old age. What can you do as an employer? You can procure a 401(k) plan for your business! Not only is this beneficial to your financial future, but your employees’ as well. To learn how to get this plan started, follow the brief guide below.

What to Know About Starting a 401(k) Plan for Your Small Business

Companies that are powered by fewer than 100 employees are in the best position to adopt a 401(k) plan for their business starting now. Those who take advantage of the current opportunities will not only experience a surge in company morale, given the improved financial stability, but a second major perk as well:

Businesses that operate with anything less than 100 employees will earn a $500 annual tax credit with the implementation of their new 401(k) savings plan. This tax credit can be a significant relief from the burden of administrative fees that come along with a 401(k) business plan. However, do keep in mind that this annual tax credit lasts only for the first three years of your plan – so take advantage of it while it’s available!

Starting Up a 401(k) Plan for Your Business

To initiate a 401(k) plan for your small business, you’ll need to abide by the guidelines detailed below:

  • First, consider the type of plan that you want. The types of available plans include:
    1. Traditional 401(k) Plans: These are some of the most popular options for businesses, as they allow for several investment opportunities for employees. Additionally, there are many tax-related advantages provided in these plans. Taxes are not imposed on the funds going into the account, only those that are withdrawn in retirement.
    2. Roth 401(k) Plans: Employees will have the option to pay taxes on their funds going into their 401(k) account. When taxes are paid on incoming funds, this is known as a “Roth contribution.” Employee contributions are made via payroll deduction, just like the Traditional 401(k).
    3. Safe Harbor 401(k) Plans: This is more so for companies that host employees that earn relatively high compensation, and can afford to invest in their retirement savings quite aggressively.
    4. Simple 401(k) Plans: This is a sort of a cross between an IRA (Individual Retirement Account) and a 401(k). Employees will be able to take out loans from their accounts as needed, and will not have to undergo compliance testing.
    5. Solo 401(k) Plans: This is ideal for entrepreneurs who may have relatively few or no employees. Freelancers, sole proprietors, and startup managers will benefit the most from this.
  • Identify a dependable 401(k) plan provider.
  • Decide on whether you will match your employees’ contributions and solidify this standard in the form of a written document and asset trust.
  • Develop a reliable method of record-keeping.
  • Inform your employees of the new standards, and start saving!

Starting a 401(k) plan for your small business can be quite an overwhelming experience. There are numerous details to consider, each of which is characterized by their unique advantages and drawbacks. To ensure you make the right choice for yourself and your employees, get in touch with a 401(k) plan provider today.

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