Small Business 401(k)
Small business 401(k) plans offer unique benefits to both business owners and their employees who participate in the plan.
Many small business employers want to provide a 401(k) to help their employees, but don’t think they have time or resources to manage a retirement plan, or don’t think they can afford one. However, with the budget-friendly, easy-to-use 401(k) solutions from our recommended plan providers, small business owners can take advantage of the business tax benefits of a 401(k) plan and offer competitive retirement plan benefits for employees.
What is a Small Business 401(k)?
A 401(k) plan can be adopted by any employer other than a state or local unit of government. A small business 401(k) is defined as a 401(k) plan for a company with anywhere from one to 100 employees. At The 401(k)ompany, we specialize in the retirement plan needs of small and growing businesses, including owner-only and start-up businesses.
Setting up a 401(k) can be complicated. The 401(k)ompany gives business owners access to 401(k) professionals in addition to low flat-fees.
Benefits of small business 401(k)
With the right 401(k) tools, both the business and its employees enjoy substantial business benefits, including:
Competitive retirement benefits to attract and retain employees
Efficient process for managing employee contributions through payroll deduction
Fewer employees working past their desired retirement date, which can impact morale and business costs
Tax deduction for plan expenses paid by the business owner
Tax credit for plan start-up costs
Small business owners along with their employees, can benefit personally from saving in a 401(k) plan, including:
Efficient, disciplined savings through automatic payroll deductions
Higher contribution amounts than permitted in SEP or SIMPLE IRA plans
Reduced taxable income through pre-tax salary contributions
Control over when taxes are paid on retirement assets (pre-tax versus post-tax Roth contributions)
Tax credits for some employees
Access to a broad range of investment options
Tax-deferred growth on investments while in the 401(k) plan
Option to take a loan from retirement savings
Ability to move assets to other retirement arrangements if changing jobs or retiring
Maximum pre-tax contributions
Business owners who are looking to maximize their savings can contribute a significant amount to a 401(k) each year. Plan contribution limits for owners and high earners may be reduced if other employees are not actively saving in the plan. Our retirement plan consultants work with each business owner to identify the optimum plan design features and resources to meet their individual needs.
2019 Limits
Tax Benefit
Consideration
Salary deferral contribution + catch-up contribution if age 50 or older
$19,000
+
$6,000 =
$25,000 maximum contribution
Tax deductible as a business expense and lowers owner’s or employee’s level of taxable income
Owner and highly paid employees may have to limit contributions if other employees are saving at low rates unless a safe harbor 401(k) plan provision is used
Employer matching or profit sharing contributions
Up to 25% of eligible compensation
Tax deductible as a business expense
- Tax deductible as a business expense
Contribution amount can vary year to year (unless a Safe Harbor 401(k) plan) - Employer contributions must be nondiscriminatory
- Owner can set employee eligibility requirements (e.g., must be age 21) and can apply a vesting schedule (unless a Safe Harbor 401(k) plan)
Maximum Contributions
100% of income up to $54,500 ($60,500 if eligible for age 50 catch-up)
Maximum contribution limit applies to each participant
Plan start-up tax credit
Business owners may be able to claim a tax credit for the administrative expenses of establishing their first retirement plan. The tax credit is equal to 50% of eligible start-up costs, with a maximum of $500 per year for three years (total of $1,500).
How to set up a small business 401(k) plan
Although each 401(k) provider will have its documentation and procedures for establishing a 401(k) plan, most business owners will need to:
Select plan features and services
Adopt a written plan
Select a menu of investments for the plan
Provide employee demographic information to service providers
Notify eligible employees of the terms of the plan
The 401(k)ompany manages all five steps for business owners with the help of qualified retirement plan advisor.
Operating a 401(k) for small business owners
Once a 401(k) is set up, the business owner will work with the chosen service provider to help make sure the plan operates according to the terms of the plan document and in compliance with other IRS tax rules that apply to 401(k) plans.
A business owner is responsible for:
Timely deposits of employee contributions
Making employer contributions (e.g., matching)
Monitoring the plan investment line-up
Ensuring that required information is provided to employees
Approving loan, hardship and distribution requests, as applicable
We help small business owners handle all of these plan maintenance steps.
One of the most important responsibilities of a business owner operating a 401(k) plan is to deposit plan contributions that are withheld from employees’ paychecks.
Business owners who do not make timely deposits may be subject to IRS and Department of Labor DOL) penalties. Small businesses (those with fewer than 100 employees) need to meet deposit requirements within seven days following payroll.
Contributions made by the business owner (e.g., matching, profit sharing) must be deposited by the business’s federal income tax return due date, including extensions.
Learn More
If you are a small business owner and need a 401(k) plan for yourself and your company, we can help.
Setting up a 401(k) can be complicated. The 401(k)ompany gives small business owners access to 401(k) professionals in addition to low flat-fees. Each retirement plan advisor has over a decade of experience assisting business owners in 401(k) plan design.
Additional resources for 401k maximum contribution
© 2019 The 401(k)ompany
200 East Broward Blvd. Suite 1320
Fort Lauderdale, FL 33301
Support: 888.667.4750
© 2019 The 401(k)ompany
200 East Broward Blvd. Suite 1320
Fort Lauderdale, FL 33301
Support: 888.667.4750
© 2022 The 401(k)ompany, All rights reserved.
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