Benefits Of 401(k) For Small Business

Benefits Of 401(k) For Small Business | The Ray Group
Many large companies offer a 401(k) plan. But small companies avoid offering such a plan under the assumption that the benefit is too expensive or risky. If you are resisting adding this plan, keep reading to see how the benefits of setting up a 401(k) for your small business may outweigh the cost!

Types Of 401(k) Plans For Small Business Owners

There are many retirement plan options for small business owners to choose from. But depending on the size of your company, some may be more appropriate than others. Here are a 5 examples of such plans and the benefits of each 401(k) can have for your small business.

1. Roth 401(k)

A Roth 401(k) has the advantage of tax-free withdrawals at the time of retirement because employees contribute post-tax dollars. However, if an employer sponsors this type of plan, they must also offer a traditional 401(k).


If your business has less than 100 employees, it may be eligible for a SIMPLE IRA. Because there is no discrimination testing, it generally fairly easy to manage. However, employees must contribute to it and participants are fully vested immediately. Additionally, SIMPLE IRAs cap employee contributions at a lower amount than 401(k) plans.

3. Safe Harbor 401(k)

Safe Harbor plans satisfy non-discrimination testing because employers are required to make non-elective contributions for all eligible employees. Or, match contributions from plan participants.

4. Individual 401(k)

An individual or solo 401(k) is meant for sole proprietors and other small businesses who have no employees other than a spouse. This plan offers a combination of profit sharing and elective salary deferrals. As such, participants can contribute more of their income than would be possible with some other types of retirement plans.

5. Traditional 401(k)

Employees can contribute pretax dollars from their earned wages, which their employer may or may not choose to match, up to an annual maximum. These types of plans require a considerable degree of administrative resources because they must undergo rigorous non-discrimination testing.

Benefits Of 401(k) For Small Business

If you’re still on the fence about offering a retirement plan, the below benefits of having a 401(k) for your small business may change your perspective. By offering a 401(k), a small business can:

  • Accumulate Tax Savings At The Business Level. A company match is tax deductible to the business, creating an additional benefit to your employees while lowering tax obligations. This credit is available for the first three years of implementing a 401(k).
  • Create Benefits At The Personal Level. You, as the business owner, is more likely to take a salary each year with the ability to make a pre-tax contribution to your own retirement plan. Many entrepreneurs leave a significant amount of their net worth in the business, which can be a gamble. You can reduce the overall risk by adding a retirement plan to your portfolio. The match amount paid into the 401(k) by the company is not included in taxable income at the time of contribution.
  • Stay Competitive By Attracting and Keeping Top Employees. We can all agree that finding quality staff is a huge challenge. Many applicants expect to see a 401(k) or other retirement plan as part of their benefits package. Recruiting, hiring, and employee turnover costs could all be reduced by taking care of your team with great benefits. Do not underestimate the perk of helping low-paid employees //”>save for retirement as well.

How To Choose The Best 401(k) Plan For Your Small Business Needs

To find the right 401(k) for your small business, look for plan providers that:

  • Charge reasonable plan and investment fees and have no hidden costs
  • Provide real-time integration between the 401(k) record-keeping and payroll systems to eliminate manual data entry and reduce errors
  • Offer a simplified compliance process
  • Make administrative fiduciary oversight available
  • Offer ERISA bond and corporate trustee services
  • Help with investment fiduciary services and plan investment responsibilities
  • Make investment advisory services available for employees

Retirement benefits of 401(k) plans are not luxury reserved just for large businesses, small business can take advantage of these plans as well. A variety of retirement plan solutions exist today that can help small business owners not only secure a nest egg for themselves, but also attract and retain talented employees.

If you have any questions about starting a 401(k) for your small business, please feel free to contact us online or visit The Ray Group office!

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