Retirement planning is an important part of everyone’s financial picture–but it’s especially important for small business owners.. After all, as a small business owner, you need to plan for not only your retirement, but you must also ensure you’re providing your employees with the resources they need to thrive in the future. So we’re breaking down the fundamentals of picking the small business 401(k) that’s right for you (and your crew).
PSA: Retirement planning is important.
And for small business owners, we might even say it’s essential. First, it allows you to save money for your retirement, which can help you maintain your lifestyle and cover your expenses after you retire. Second, offering a comprehensive benefits package–including a small business 401(k)–can be a powerful recruiting tool for attracting and retaining top-tier candidates. It’s also likely to provide tax benefits to you and your small business. Here are 5 easy tips to make retirement planning for you (and your small business) a breeze.
1. Take advantage of the tax breaks.
Yep, you read that right: Providing a 401(k) plan to your small business employees can help lower your tax bill. There are three main ways this can benefit you:
- You become eligible for tax deductions. For example, when you open a new plan, you can qualify for up to $5,000 for the first three years (and add an extra $500 if you have automatic enrollment)1
- Both you and your employees benefit from tax deferral, since contributions to the plan are made on a pre-tax basis.
- Tax free growth. That’s right–your money grows, without any taxes, until you withdraw it in retirement, helping the funds increase more quickly over time due to compound interest.
2. Understand the different types of retirement plans.
There are several types of retirement plans available to small business owners. Some of the most common for small businesses are:
A 401(k) plan is a type of employer-sponsored retirement savings plan that allows employees to contribute a portion of their salary on a pre-tax basis. The contributions are invested in a selection of investment options such as stocks, bonds, and mutual funds, chosen by the employee. The earnings in a 401(k) grow tax-deferred until withdrawal, typically in retirement. Employers may also offer matching contributions, where they contribute a percentage of the employee’s contributions, further boosting retirement savings.
Solo 401(k) Plans
If you’re self-employed, a solo 401(k) could be right for you. Also known as an individual 401(k) or self-employed 401(k), a solo 401(k) is a retirement savings plan designed for self-employed individuals or business owners with no employees except for a spouse. It offers similar features as a traditional 401(k) plan, allowing for tax-deferred contributions and investment growth.
As both the employer and the employee, the individual can make contributions as both, potentially allowing for higher contribution limits. A solo 401(k) plan provides the opportunity for self-employed individuals to save for retirement and enjoy potential tax benefits.
An IRA (Individual Retirement Account) is a type of retirement plan that allows individuals to save and invest for retirement with tax advantages. Contributions to an IRA may be tax-deductible depending on the type of IRA and your income level. The earnings in an IRA grow tax-deferred until withdrawal, typically in retirement, when they are subject to taxation.
This type of plan is not offered by employers and offers only a limited ability to save each year – three times less than you can save with a 401(k). Take a look at the annual contribution limits to see the differences in start relief.
3. Choose the right retirement plan…
Choosing the right retirement plan can be challenging for small business owners. You need to consider several factors, such as the size of your business, the number of employees, and your budget. Looking to get started? This handy guide to picking the perfect plan for you (and your employees) has you covered.
4. …And the right provider.
Yep, picking the right provider matters too. Look for one who offers flat fees, low prices, and has plenty of experience implementing small business 401(k)s.
Allow us to introduce ourselves: Ubiquity Retirement + Savings® has been tried and trusted since 1999 and offers the best flat-fee2 401(k) plans for small businesses. But don’t just take our word for it – because we’re also ranked #1 on Google Reviews3.
5. Offer a match if you can!
An employer match is a great way to get your small business’s employees to participate in your plan. While it may seem counterintuitive, offering a match can actually help you save money on taxes, hiring and onboarding costs, and more, making it a smart investment for any small business.
Ubiquity is not a registered investment advisor, and the information provided herein should not be considered legal or tax advice. We recommend consulting with your financial planner, attorney, and/or tax advisor for personalized advice.
1 Eligible employers can receive a tax credit of up to $5,000 over three years for starting a 401(k) plan, subject to IRS requirements. Employers with 50 or fewer employees qualify for a 100% tax credit, while those with 100-50 employees can receive a 50% tax credit. Additional eligibility criteria include having at least one non-highly compensated employee, an employee who received at least $5,000 in compensation in the preceding year and having substantially the same employees receiving contributions or benefits from another plan sponsored by the employer, a member of a controlled group, or a predecessor within the three tax years prior to becoming eligible. Employers with automatic enrollment plans can receive an extra tax credit of $500 per year for a three-year taxable period.
2 Decimal, Inc. charges flat fees for recordkeeping and administrative services. Third-party service providers may assess asset-based fees to customers. We advise Plan Sponsors to review all service agreements with providers, such as investment advisors, custodians, and broker-dealers, to evaluate the total cost of the plan.
3 Google ratings for Ubiquity Retirement + Savings products and services are determined by customer reviews. The rating calculation methodology is available here. The rates shown were last updated on January 12, 2023, and are based on reviews from 2014 to 2023.