5 Reasons Why Every Small Business Should Offer a 401(k) Plan

Author: Robby Forsythe / Reviewer: Callie Adams Farnsworth, QKA, CAFCA
9 Mar 2023 / 401(k) Plan Information, Small Business 401k

Attracting and retaining top talent can be challenging for small business owners. You may be competing with larger companies that offer more generous benefits packages, making it difficult to stand out. However, one benefit that every small business should consider offering is a 401(k) plan.

What is a small business 401(k) plan?

A 401(k) is a retirement savings plan that allows employees to contribute a portion of their pre-tax income to a retirement account up to a certain limit. The funds in the account are invested and employees can withdraw them penalty-free once they reach age 59 ½. A small business 401(k) plan does that, too, but is designed specifically to meet the needs of your small business.

A 401(k) plan will help your small business attract and retain top talent

As you know, the best employees are hard to find. They have a proven track record of success, they’re excited about what they do and they want to be part of a winning team. The key to attracting and retaining top talent is offering them benefits that matter to them–and helping them take control of their financial future is one way you can show that you care.

Companies that offer a retirement plan will always be more attractive to prospective employees than those that do not. Bear in mind also that savvy job candidates compare benefits packages when they have multiple job offers. A 401(k) plan will help you remain competitive with much larger companies.

There are tax advantages for both employers and employees

The second reason to offer a 401(k) plan is that it can provide tax breaks for both you and your employees.

For employers: When you make contributions to your employees’ 401(k)s, those contributions are not included in their taxable income, reducing their overall tax burden.

For employees: The second part of the equation involves employee participation: The IRS allows people who use these types of plans to put away some money each year without having it count as part of their gross income until they withdraw it during retirement.

Employees can make their own contributions

Not only does a 401(k) plan offer tax advantages for you as the small business owner, but it also provides a way for your employees to save for retirement. By allowing employees to contribute a portion of their pre-tax income to a 401(k) plan, you are helping them save for their future.

Many 401(k) plans also offer employer-matching contributions, which can further incentivize employees to save. For example, you might offer a matching contribution of 50 cents for every dollar that an employee contributes, up to a certain percentage of their salary. This can be a powerful tool for encouraging employees to save more.

Reduced fiduciary responsibility

One of the concerns small businesses have about offering a 401(k) plan is the fiduciary responsibility of managing retirement accounts. However, partnering with a 401(k) provider can help small businesses reduce their fiduciary responsibility.

401(k) providers take on much of the fiduciary responsibility, such as selecting and monitoring the investment options in the plan. This can help small businesses save time and reduce their legal liability.

Personal retirement savings

If you’re a small business owner, you know it can be hard to find the time and money to offer retirement plans. You have so much on your plate already! But if your employees don’t have access to a 401(k) plan, they may not be able to save for retirement at all.

A 401(k) is an employee-sponsored retirement savings account offered through an employer that allows workers to put aside some of their salary before taxes are taken out. This gives them an opportunity to start saving earlier in life than if they waited until after tax season each year, when there might not be enough left over after paying bills and expenses.

By offering this benefit, you can show how much you value your staff members’ careers (and lives) by giving them tools for financial security beyond just paying their salary.

 

 

Ubiquity is not a registered investment advisor and no portion of the material herein should be construed as legal or tax advice. Please consult with your financial planner, attorney and/or tax advisor for advice.