Small business owners and start-ups often find it difficult to set up a retirement plan as they believe they have limited resources and cannot afford the plan. However, this is not true. By setting a simple small business 401(k) plan, employers can retain talent, attract new employees and automate their plan administration.


Understanding a Small Business 401(k) Plan


Any employer whose business has between 1 to 100 employees (except for state and local government bodies) can adopt the small business 401(k) plan. Just like other retirement plans, a small business 401(k) plan helps owners take out the money from the paystub before tax and contribute it toward retirement savings. By opting for a retirement plan, small business owners can enjoy tax benefits and provide substantial retirement benefits to their employees. 


Benefits of a Small Business 401(k)


The following benefits can be enjoyed by business owners and employees through the small business 401(k) plan: 


  • Disciplined and efficient savings through autopayment deductions.
  • Higher contributions limits when compared to SEP or SIMPLE IRA.
  • Reduced taxable income through the pre-tax salary contributions.
  • Tax credit to cover administrative expenses like plan start-up costs.
  • Ability to borrow a loan from retirement savings. 
  • A wide array of investment options.
  • Option to move savings to other retirement plans after a job change, or retirement.
  • Exemption from ‘asset under management’ or AUM fees charged by traditional 401(k) plans for larger businesses.


Setting Up A Small Business 401(K) Plan

Every 401(k) provider has a different process and documentation requirement for setting up the plan. Here is an overview of the main steps that are involved in setting up a small business 401(k) plan: 


  • Evaluating plan options and selecting the features that best suit your business goals.
  • Approving a written plan agreement and arranging funds for the plan.
  • Providing employees with the information of the plan provider. 
  • Informing the employees about the terms and conditions of the plan.  
  • Approving any hardship requests, loans, or any special distribution requests as applicable.


Business owners have a crucial responsibility to ensure that the contributions to the plan are deposited as per the procedure in the required time frame. If the plan includes matching contributions by the owner, such contributions also need to be deposited before the IRS tax return due date to avoid penalties. 


How can a good 401(k) provider help you?


If you are a start-up or a small business owner, planning to adopt a 401(k) plan, you can seek help from a professional 401(k) plan provider who will walk you through the process of setting up the plan and customizing it as per your business goals. A good 401(k) provider will smoothen the entire process for you and make it hassle-free. Moreover, a knowledgeable professional will have your best interests in mind, guide you in selecting the best offers and provide complete transparency so that you can immediately start the plan and save toward your retirement.