In 401(k) Plans for Small Business

From healthcare to profit-sharing, there’s a wide range of benefits you can offer your employees. But there’s a reason why employees particularly love the small business 401(k) offering. It’s never too early to start planning for retirement, but inertia often wins out. It can be difficult to go to the bank, set up an account, modify spending behavior for saving, and understand the ins and outs of different retirement savings plans. A small business 401(k) offers your employees the benefits of convenience, tax advantages, and the possible added incentive of employer matching.

Here are five reasons why your employees would love to have a 401(k).

1. Small Business 401(k)s Offer Tax Advantages

One of the biggest advantages of a 401(k) retirement plan is what you can save on taxes. Unlike your average savings account, the money that goes into a 401(k) is pre-tax and can grow in the account tax-free. While you will have to pay taxes on the money when it is withdrawn, the tax setup of a 401(k) reduces your tax burden upfront.

2. Mutual Funds Make Saving Effective

If you invest your 401(k) wisely, you can see a significant return on your investment at a rate much higher than that of a normal savings account. Generally, 401(k) plans offer a variety of mutual funds. Employees can take advantage of this by diversifying their funds across a variety of risk levels. Be sure to diversify your portfolio in relation to your risk tolerance. To help your employees invest their portfolio wisely in a pre-screened line-up the mutual funds, it’s a good idea to have a small business 401(k) financial advisor on hand.

3. Automatic Deposits Make Saving Easy

The saying “out of sight, out of mind” is relevant when it comes to saving for retirement. While it can be satisfying to watch funds build up over time, it’s often tempting to divert manual deposits toward regular spending. A regular savings account is far too visible to be practical for retirement savings (not to mention far less effective in generating significant returns).

A small business 401(k) with direct deposits into the fund makes saving easy by making it automatic. Now, your employee doesn’t have to worry about the account and won’t be tempted to spend what’s in it.

4. Contribution Matching Builds Wealth

Of course, employees tend to love a small business 401(k) plan most of all when it includes contribution matching. For many 401(k)s, the employer can match up to a certain percentage. When combined with the compounding effect of interest, this is a huge benefit.

While you don’t have to provide your employees with a contribution matching plan, it can be a big incentive for hiring new talent and retaining your best employees.

An alternative to standard matching is structuring a bonus plan with a 401(k) option. Under this plan, the employees can choose to receive their bonus in cash or to have the amount added to their 401(k). This offers employers a cost-effective way that allows their employees to choose whether they want to receive their compensation directly or elect to contribute it to their 401(k) account.

5. Benefit from Employees Who Think like Owners

Utilizing the profit-sharing feature of a 401(k) plan is an excellent way to get employees to think like owners.  Some businesses do this is by clearly articulating a key business milestone objective at the beginning of the year to the employees – such as profitability, productivity, safety – and promise to fund a profit-sharing account if that objective is achieved.  Once the milestone is achieved, a pool of profits is distributed to all employees to their individual 401(k) accounts.  Business owners can fine-tune the profit-sharing methodologies to favor certain groups of employees and vesting schedules to encourage employee retention.  Employees like these programs, as it gives them greater pride in being able to contribute and be more valued in the organization.

Ready to Get Started with a Small Business 401(k)?

The earlier your employees start saving for retirement, the better. By offering a 401(k), you can set them up for a successful future. Your employees deserve world-class options for building retirement wealth. Offering a 401(k) can allow them to do just that by setting them up to save as early as possible.

These days there is a broad diversity in the workforce – in terms of age and financial sophistication.  Do not let this be a barrier to setting up a 401(k) plan, as they all need to retire someday.  and a company-provided 401(k) makes saving for retirement easy. Instead of worrying about which plan to choose, how much to put in, or how to invest their portfolio, a company-provided 401(k) plan provides worry-free retirement saving. With the help of a financial advisor, you can customize your benefit to fit your employees’ needs, which will make the plan successful and highly valued.

Whether it’s because of the convenience, increased saving power, tax advantages,  contribution matching, or aligning incentives – employees love small business 401(k) plans. These plans offer big advantages to your staff and can serve as an effective recruitment tool.

If you need help setting up a small business 401(k) for your employees, contact me today. I can help you make the right choices to set your staff up for success.

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