Why Business Owners Should Start a 401(k) Retirement Plan

Nov 14, 2013 11:18:01 AM / by Jason Shaw

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Smart business owners know the value of a retirement plan. It’s a strategic tool to help you and your employees put more money toward your future. It can help you attract and retain top-quality employees who can help make your business successful. Boelman Shaw Capital Partners has the 401(k) offerings and experience to design a retirement plan that best suits you and your business.

Even Small Business Owners Can Start a 401(k)!

Do you think your business is too small for a 401(k)?  You’re not alone.  It is a common misconception that 401(k)s are only for larger businesses.  The fact is, however, that even a sole proprietorship with no other employees can start a 401(k).  Low-cost plans are available that make it feasible for even small business owners to provide this benefit to their employees.  Tax credits are available for providers of these plans, making them even more affordable.

 

A 401(k) Plan Offers Advantages to You and Your Business.

Providing a 401(k) plan for your company carries a host of advantages.  You and your employees can set aside up to $51,000 per year and an additional $5000 annually in catch-up contributions after age 50.  Contributions are tax-deferred for the employee, and contributions that you make on your employees’ behalf are tax deductible.

Offering this benefit to your employees can help you attract the best talent in your field.  According to Forbes, it used to be that small business tended not to offer employee benefit plans, so many of the most desirable candidates looked toward larger corporations.  During the recession, however, a great number of large businesses cut matching contributions to their employees’ 401(k)s.  Now savvy small business owners are catching up and enticing valuable employees to their companies with attractive plans and competitive matching contributions.

 

Types of 401(k) Plans

You can choose among different types of 401(k) plans to establish for your business.  You may select a traditional 401(k), a safe harbor 401(k), or a SIMPLE 401(k) plan.  For more detail about the various types and features of 401(k)s, see the IRS’s 401(k) Resource Guide.

Traditional 401(k)

This plan offers the greatest degree of flexibility.  You may choose to contribute to all employees’ plans, to match employees’ contributions, to do both, or neither.  Under the traditional plan, you may institute a vesting schedule that delineates the time frame after which contributions by the employer are no longer forfeitable.  Traditional 401(k)s are subject to annual testing.

Safe Harbor 401(k)

Under a safe harbor plan, employers must satisfy certain notice and contribution requirements, and employer contributions must be vested when they are made.  Safe harbor 401(k) plans are exempt from annual testing.

SIMPLE 401(k)

The SIMPLE 401(k) is available to business owners with fewer than 100 employees.  Like the safe harbor plan, it carries the advantage of avoiding annual testing but requires immediate vesting of employer contributions.

Automatic Enrollment Option

You may include an automatic enrollment feature in your company’s 401(k).  This has the benefit of increasing employee participation in the plan.  Employers may automatically reduce employees’ wages by a certain percentage and contribute this percentage to the plan unless the employee has opted out or actively chosen a different percentage to be contributed.

 

The professionals at Boelman Shaw Capital Partners in Des Moines have the knowledge and experience to craft a 401(k) plan that suits the individual needs of your business.  Contact us today to get started.

Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice.

Topics: Financial Planning

Written by Jason Shaw