How You Can Start a Small Business 401(k) Plan


There is a common misconception that start-ups and small businesses cannot afford a good retirement plan due to their small size and limited resources. In fact, small business owners can quickly start a budget-friendly 401(k) retirement plan by following some easy steps. This small business 401(k) plan can provide tax benefits and help in acquiring new talent.

What is a Small Business 401(k)?

A small business 401(k) retirement plan is similar to any other 401(k) plan and allows employers to take out a specific amount from the pre-tax paystub and save it toward retirement. A small business 401(k) is specially designed by keeping entrepreneurs and businesses with less than 100 employees in mind. Except for the government bodies, all other employers are eligible to start a small business 401(k) plan.

What Are the Benefits of a Small Business 401(k)?

Small businesses can provide competitive retirement savings to their employees while taking advantage of tax benefits by opting for a 401(k) plan. According to 401(k) plan provider Ubiquity, some of the key benefits that business owners and employees enjoy through a small business 401(k) plan are:

  • A tax credit that covers plan start-up and administrative costs.
  • Automatic payment deductions for efficient and disciplined savings.
  • Higher contribution limits than other plans such as SEP or SIMPLE IRA.
  • Pre-tax contributions to the plan resulting in reduced taxable income.
  • A wide range of investment options.
  • Provision to borrow money from retirement savings.
  • Ability to move funds to other retirement arrangements at the time of job change or retirement.
  • Exemption from asset management or AUM fees usually taken by traditional 401(k) retirement plans.

How Can You Set Up A Small Business 401(K) Plan?

Small business owners can easily set up a small business 401(k) plan through a 401(k) plan provider. The plan providers may have different documentation requirements and procedures that need to be followed while setting up the plan. Here is a brief outline of the key steps involved:

  • Reviewing the plan options and choosing plan services based on your business needs.
  • Adopting the plan and arranging funds for the plan.
  • Informing the employees about the plan and the service provider.
  • Providing employees with the terms and conditions of the plan.
  • Approving any distribution requests, loans, or hardship requests.

Business owners have the crucial responsibility of ensuring that the plan contributions are deposited on time. If the employer decides to make matching contributions, these contributions should also be made before the IRS tax return deadline to avoid penalties.

How Can A Professional 401(k) Provider Help You?

Since small business 401(k) plans provide substantial benefits, all small business owners and start-ups are recommended to opt for it. A professional 401(k) plan provider can help owners select the plan options and customize the plan based on the business needs. Besides, an expert plan provider can guide you through each step and smoothen the procedure. A knowledgeable plan provider will keep your best interests at heart, provide transparency and assist in setting up the plan immediately so that you can start contributing toward retirement.


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