Offering a retirement plan can help attract and retain employees. However, there are several factors to consider as you research providers. A 401(k) is an employer-sponsored savings plan that allows participants to invest a portion of their salary on a pretax basis. Small businesses with fewer than 100 employees can qualify for a $500-to-$5,000 credit to offset setup and administrative fees.
Tax Deductions
When employees save with a 401(k) plan, their contributions are tax-deductible. This gives employees a powerful incentive to keep. It also benefits the business, as employer contributions are deductible as a business expense. Additionally, companies with 100 or fewer employees can claim credit for the startup costs of a new 401(k) plan. In addition to a 401(k), small businesses can offer other types of retirement plans that aren’t traditional 401(k) plans but still provide an excellent way for employees to save. Examples include profit sharing and SIMPLE IRAs, which allow employers to make non-elective contributions of two percent of an employee’s salary. Many small businesses use a service provider like ADP that offers recordkeeping, compliance testing, and day-to-day plan administration as part of its package. This eliminates the need for small businesses to manage multiple systems and vendors. It also helps to ensure that the service provider covers all required aspects of a retirement plan. This helps protect a business from liabilities that may result from improper or incomplete execution of the project.
Investment Options
In the competitive world of recruiting top talent, companies must differentiate by salary, benefits, culture, growth opportunities, and retirement plans. Providing an employee-sponsored retirement plan communicates to candidates that you are invested in them and their financial future. Small businesses can choose from various providers to manage their 401(k) plan and provide investment options for employees. The cost of setting up a 401(k) varies, depending on the provider and plan features selected. Ongoing prices include recordkeeping, administrative, investment, and individual service fees. Several providers offer 401(k) solutions for small business owners. These providers can handle most, if not all, of your 401(k) needs, from recordkeeping to investment management. A key consideration is whether you prefer to take an a la carte approach with different providers or find one that can handle most, if not all, services in-house. Generally, a bundled solution is less expensive than providing each service separately. Additionally, there are lower initial setup costs with some providers.
Flexibility
Offering a 401(k) plan can make it easier for your employees to save for retirement. However, you must review your fiduciary responsibilities and choose the right provider for your company. There are several options for setting up a small business 401(k). If you have fewer than 100 employees, consider a SEP-IRA or SIMPLE-IRA. These plans are designed with small businesses in mind and allow owners to contribute up to $66,000 (as of 2023) or 25% of their salary. Consider partnering with a PEO (professional employer organization) for a more comprehensive solution. A PEO handles HR, payroll, and benefits on your behalf and provides competitive 401(k) plans for small businesses. Look for a provider that streamlines the process with technology to automate manual processes and offload upfront charges that may have made traditional 401(k) plans unaffordable for many smaller companies. Then, find an investment advisor who offers low transaction fees to keep your costs down. A 401(k) plan allows employees to save pretax money for retirement. In addition, the employer may match employee contributions to encourage them to save even more for their future. 401(k) also allows employees to withdraw funds from their accounts without penalty if they are not 59.5 or older. In addition to these benefits, a 401(k) provides flexibility for small business owners who want to offer retirement plans.
Incentives
Offering a retirement plan can be an essential incentive to help attract and retain top talent. 401(k) plans typically have low startup costs and are easy to manage once they’re in place. The IRS’s Small Business Retirement Entrepreneur Tax Credit can help offset some of your initial plan expenses. Several types of 401(k) plans are available to small businesses, including the traditional 401(k), SIMPLE-IRA, and SEP-IRA. A SEP IRA is ideal for sole proprietors, independent contractors, and small businesses that want to sponsor their retirement savings plan. It’s technically an IRA, so it has lower contribution limits (up to $66,000 or 25% of earnings) and no recordkeeping or third-party administrators required. When choosing a provider to help set up your 401(k) plan, look for one that offers all-in-one service.
