Small business owners make hundreds of decisions a day ranging from big to small—and many decisions have some sort of effect on their company’s bottom line and overall livelihood. When it comes to the benefits package offered by the company, small business owners may also make decisions that impact the livelihood of their employees as well.

That’s a lot of pressure.

It can be tough to justify adding extra expenses to the company’s bottom line in the form of benefits, but there are a few that come with advantages for the small business owner as well, like a 401(k) plan. When it comes down to it, there are many reasons you’ll want to consider starting a 401(k) plan and benefits of doing so for both the business and the employees.

Why start a small business 401(k) this year?

1. Tax credits

The SECURE Act, passed in late 2019, increased tax credits available to small businesses that are starting a 401(k) plan to $5,000 per year* (up from $500) for the first three years the plan is in place to help offset administrative costs—up to a total of $15,000 over the course of three years. Credits can be used to cover up to 50 percent of eligible expenses, including setup and administrative fees, as well as other costs associated with starting the plan. The SECURE Act also included an additional $500 tax credit per year for up to three years for new plans that include automatic enrollment (totaling up to $1,500).

2. Tax deductions

As a 401(k) plan sponsor, you are not required to match employee contributions, but many 401(k) plan sponsors decide to offer a matching agreement as a benefit to employees. Any matching contributions made by the employer are tax-deductible, and employers have a variety of contribution options to choose from, including a dollar-for-dollar match, a partial match, and profit sharing options as well.

3. Employee productivity, retention, and acquisition

The benefits package you offer may make or break your company when it comes to hiring and retaining employees, so another reason to seriously consider establishing a 401(k) plan for your small business this year is employee attraction and retention. Offering a retirement savings plan can help small- to mid-size businesses stand apart from other options—which may make applicants more likely to accept a job offer and current employees less likely to look elsewhere.

Offering a retirement savings vehicle for current and future employees to save in could go a long way in easing their financial anxieties—which, in turn, may make them more productive and boost your bottom line.

4. Easy to manage

Many small business owners are often unsure if they have the time or capacity to run a 401(k) plan along with everything else they do, but luckily, there are 401(k) providers out there that specialize in helping small employers run their plan. Whether you have one employee or 100, there are 401(k) plan options available to fit your company’s needs and goals. Some providers even build fiduciary protections into their services to help take the legal responsibilities and fiduciary liabilities associated with running the plan off your shoulders.

Plus, there are 401(k) providers out there who can help you streamline your benefits processes by integrating with your payroll provider—saving you time and money, reducing errors, minimizing your administrative tasks, and making timely investment of employee 401(k) contributions on your behalf.

5. Small business owners need retirement savings too

As a business owner, you need to be able to set aside some retirement savings too—and one of the best ways to do that is in a tax-advantaged account like a 401(k) plan. Not only do 401(k) plans have a higher contribution limit than other retirement plan options such as an IRA and SIMPLE IRA, but they’re also flexible enough to fit with your company’s needs and goals. Have a high number of Highly Compensated Employees (HCEs) at your business, for example? Many 401(k) plans also offer safe harbor options to help small businesses pass non-discrimination testing; you’ll just want to make sure the plan is in place prior to safe harbor deadlines for the year.

 

* Requirements for this credit include:
– Has less than 100 employees
– At least one non-highly compensated employee must be participating
– Employer must not have sponsored a qualified plan in the last three years