Small businesses and start-ups often believe that they cannot set up a 401(k) plan based on the size of their business and limited resources. But that is not true. All small businesses can set up a retirement plan to attract and retain talent by following a few simple steps.
About a Small Business 401(k) Plan
Any business except for government bodies with an employee count between 1 to 100 is eligible to start a small business 401(k) retirement plan. Like other retirement plans, the small business retirement savings plan allows the employer to take out a predefined amount from the paycheck before tax and contribute it to the retirement funds. By adopting a 401(k) plan, small business owners can provide substantial retirement benefits to their employees while enjoying tax benefits.
Benefits of Setting Up a Small Business 401(k) Plan
With this information provided by plan provider Ubiquity, it’s apparent that both the employer and the employees can greatly benefit by setting up a small business 401(k) plan. Some of the key benefits include:
- Easy and automatic payment deductions to help with disciplined savings.
- Higher contributions limit as compared to other retirement savings options such as SIMPLE IRA or SEP.
- Pre-tax salary contributions reducing the overall taxable income.
- Tax credit that can help cover plan start-up expenses or any other administrative costs.
- Provision to borrow loan from the retirement fund.
- A wide range of investment options.
- Ability to move funds to any other retirement savings during retirement or after a job change.
- Freedom from asset management fees typically charged by traditional 401(k) plans used by larger businesses.
Applying for a Small Business 401(k) Plan
You can set up a small business 401(k) by contacting a plan provider. Each plan provider may have different procedures and documentation requirements. However, here is a general overview of the steps involved:
- Evaluate the different plan features and choose the options that suit your business.
- Inform the plan provider about the selected options and approve a written plan agreement.
- Arrange funds for the plan.
- Provide plan provider’s information to all the employees and inform them about the plan’s terms and conditions.
- Review and approve any loans, hardship requests, or special distribution requests.
Business owners are responsible for ensuring that the plan contributions are deposited as per the provider’s guidelines within the required time period. If the plan provides matching contributions by the employer, then such contributions should be deposited before the IRS tax return date to avoid penalties.
Consulting A Good 401(K) Provider
If you are ready to set up your small business 401(k) plan, you can consult a professional plan provider who will guide you through the process and customize it based on your business goals. A good provider will provide all the necessary resources to make the process hassle-free. Besides, an experienced professional plan provider will keep your best interests in mind, ensure complete transparency, and guide you in selecting the best options so that you can immediately set up the plan and start saving.