How Much Does a 401(k) Cost?

Small businesses are overlooked in the 401(k) industry and charged higher fees because they have fewer employee participants and smaller account balances. At Ubiquity Retirement + Savings, helping small businesses with affordable retirement plans is all we do. Ubiquity was the first in the industry to offer small businesses a flat fee retirement plan. We also offer a diverse group of investments for you to choose from. Our goal is to help small business start and maintain 401(k) plans in a way that saves time and money, so employers and employees can grow their retirement savings.

Understanding 401(k) costs and fees

It is important to understand the types of fees that may be assessed in a 401(k) plan and who can pay those fees, so you can make smart choices when it comes to your retirement savings. In fact, the retirement plan rules require the employer offering the plan to keep an eye on plan costs to ensure they are reasonable based on the services received. The employer must pay some 401(k) fees, and some are deducted from employees’ 401(k) accounts. Here are the fees that typically occur in a 401(k) plan and how they can be paid.

To help pay for 401(k) costs, and as another incentive to save for retirement, the IRS provides tax credits for employers and employees who start and save in a 401(k) plan.

Employers – Certain employers can claim a tax credit for up to 100% of the costs of setting up and administering a plan and educating employees about the plan. Up to a maximum of $500 per year may be claimed for three years. To be eligible for the credit, the business must meet the following requirements:

• No more than 100 employees who received $5,000 or more in pay last year
• At least one employee who owns less than 5% of the company and who earned less than $150,000 last year
• No retirement plan for your employees in the last three years

If your business does not qualify for the tax credit, you may be able to deduct the startup costs as a business expense.

Employees

Employees, including business owners, can claim up to a $1,000 tax credit ($2,000 for those filing jointly) each year for making 401(k) and IRA contributions if they are age 18 or older, not a full-time student, and not a dependent on another person’s tax return. To be eligible for the tax credit for 2023, your income must be less than $73,000 if you are married, and $36,500 if you are single. The IRS adjusts these amounts for inflation each year.