Your Small Business Can’t Afford to Ignore 401(k) Plans

Author: Siân Killingsworth / 13 Mar 2023 / 401(k) Resources

Better retention. Wealth-building opportunities. Tax breaks. Need we say more? Okay, we will: An employer-sponsored small business 401(k) plan is easy to administer and affordable—and when it comes to offering them to your employees, it just makes sense for so many reasons:

Your employees need a savings plan.

The first step to helping your employees save for retirement is to understand why they need a 401(k) plan–and to do that, you need to know about employee retirement.

An employee retirement plan allows the workers at your small business to set aside money from their paycheck and invest it, which can help them build wealth and have more discretionary income in the future.

An investing team is an invested team.

A 401(k) plan is a way for individuals to save for retirement. Employees (and small business owners!) can contribute up to $22,500 in 2023, and those 50 or older can contribute an additional $7,500 per year.

Even if they can’t contribute up to the limit, the benefits of helping employees build wealth are many, including:

• Offering a 401(k) can help attract (and retain) top talent to your small business.
• Turnover rates may be lower because workers will feel more secure about their future if they’re invested in your small business’s success.
• Now more than ever, potential employees are looking for workplaces that offer competitive benefits packages. Don’t miss out on talent because they got better saving options elsewhere!

Small business 401(k)s are easy to administer and affordable.

The cost of offering a 401(k) plan is generally far lower than other types of retirement savings plans. Plus, many plans offer flat-fee options which include all expenses related to running the plan, from employee education costs to fees for preparing documents.

The good news doesn’t stop there: You don’t have to hire an outside administrator or service provider because many companies offer this service as part of their comprehensive offering. This means you’ll have one less thing on your plate as an owner, so you can spend more time running your business.

Hello, tax credits.

The tax breaks available to small business owners are pretty juicy: when you establish a new 401(k) plan, you may qualify for up to $15,000 in tax credits over three years. That’s $5,000 per year for the first three years of your plan. And if your plan offers automatic enrollment, you can qualify for another $1,500 for those first three years. That’s a significant savings that you can use to cover the cost of setting up the plan, and it may also help to reduce your taxable income.

A savings plan is good for your bottom line.

A 401(k) plan is good for both employees and small business owners. It allows tax advantages to employees who are saving for retirement, and gives tax deductions to employers when they contribute money into 401(k)s on behalf of their workers—saving both parties money in the long run.

Offering a retirement plan is also a great way to show employees you value their futures and understand that a 401(k) is a vital part of any compensation package. This helps to reduce employee turnover and is effective in helping potential new employees view your company as a competitive employer.

It may be required.

More than half of U.S. states have considered mandating that small businesses offer a retirement plan to their employees, and over a quarter have implemented such a mandate. This means that if you have employees (i.e., your business is not a sole proprietorship), you may have to choose between a state-sponsored plan and a private plan provider.

Most state sponsored plans are traditional IRAs, which enable savers to put away up to $6,500 annually, plus an additional $1,000 for those age 50 and older. But with a private 401(k) such as those offered by Ubiquity, you can save up to the maximum of $22,500 (or $30,000 for those age 50 and older). That’s nearly three times as much savings. Plus, you can contribute to your own 401(k) as both the employee AND the employer, enabling you to save up to a grand total of up to $66,000 (or $73,500) this year. Not too shabby!