Many small business owners see a 401(k) as an unnecessary expense they may not be able to afford. However, a 401(k) plan is not out of reach and is incredibly beneficial to business owners of any size. Here are some of the benefits they can offer:
Helps recruit and retain employees
When prospective employees are searching for a job, often the deciding factor is the types of benefits provided, like retirement plans and healthcare. By offering a 401(k) plan, a company can ensure that they have a leg up on the competition when vying for the same candidates. Retirement plans can also show that a company is invested in the employee, therefore helping to keep employees happy and reduce turnover.
Save money for your business
Qualified employers may be able to claim a tax credit of up to $500 a year for the first three years of the plan. On top of that, matching contributions are tax deductible, as long as they are under 25 percent of total compensation paid or accrued. Because of these tax savings, 31 percent of business owners see a decrease in taxes after the implementation of a 401(k) plan.
The cost of opening a 401(k) plan has decreased over the years. For a company with 10 participants, the administrative costs of opening a 401(k) are as low as $1,000 a year. Many owners believe that matching contributions are a required part of offering a 401(k), but it is entirely possible to offer a plan without doing so.
Personal retirement savings
Far too many small business owners are relying on selling their businesses as their security for retirement. A safer, and potentially more rewarding, strategy is to establish a 401(k) plan and consistently contribute to it. This move can help save more money in the long run, as well as reduce the risk of losing your retirement savings if your business goes under. With the right plan, saving in a 401(k) can be a lucrative investment that can build to a significant amount.
Implementing a 401(k) plan can be a big decision for a company, but as an owner there are numerous benefits that can save you money now, as well as ensure your financial security for the future.