small business 401 (k) plan

How to Start a Small Business 401(k) Plan?

It is a common misconception among small business owners and start-ups that they cannot afford a good 401(k) retirement plan since they have limited resources.

In fact, small businesses can easily set up a budget-friendly small business 401(k) plan by following a few simple steps.

With some additional information provided by 401(k) provider Ubiquity, here is all you need to know to start your own small business 401(k) plan that will help you retain existing employees and attract new talent.

What is Small Business 401(k)?

Just like any other 401(k) retirement plan, a small business 401(k) plan allows you to take out a certain amount from your pre-tax paycheck and save it for retirement.

Except for the local or state government bodies, all other employers are eligible to start a 401(k) plan. A small business 401(k) retirement plan is designed by keeping individuals and businesses with less than 100 employees in mind.

Understanding the Benefits of a Small Business 401(k)

Small business owners can offer competitive retirement benefits and take advantage of the tax benefits by opting for a 401(k) plan.

Some of the benefits that business owners and employees can enjoy by selecting a small business 401(k) plan include:

  • Tax credit to cover any administrative expenses such as plan start-up costs.
  • Reduced taxable income since the salary contributions to the plan is pre-tax.
  • Opportunity for a comparatively higher contribution than SEP or SIMPLE IRA.
  • A large selection of investment options.
  • Efficient and disciplined savings through automatic payment deductions.
  • Option to take out money from retirement savings.
  • Ability to move assets to other retirement arrangements during retirement or job change.
  • Exemption from paying ‘asset under management’ or AUM fees that are usually charged by traditional 401(k) plans.

Setting Up a Small Business 401(k)

401(k) plan providers usually have different documentation and procedures that need to be completed to set up a new plan. Some of the key steps involved in setting a new plan are as follows:

  • Review the plan features and select a plan service depending on your business needs.
  • Adopt the plan and arrange funds required for the plan.
  • Notify all your employees about the plan and the service provider.
  • Provide the employees with the terms of the plan.
  • Approve any hardship requests, distribution requests, or loans.

Business owners are responsible for ensuring that the contributions to the plan are deposited in a timely manner. If the owner decides to make matching contributions then such contributions also have to be made before the IRS tax return due date to avoid any penalties.

How Can A Good 401(k) Provider Help You?

Owing to the substantial benefits provided by a small business 401(k) plan, all small businesses and start-ups are recommended to opt for it. A professional 401(k) plan provider can assist you in customizing and setting up a plan based on your business goals.

A professional will help you understand the steps involved in setting up a plan and smoothen the procedure as much as possible. A well-informed 401(k) provider will keep your best interests in mind, help you understand the offer, and provide transparency so that you can set up your plan immediately, and start contributing toward your retirement.


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