Having a 401(k) plan can serve as a very valuable tool for any business because it can help attract and retain talented employees. According to Forbes, ninety-nine percent of businesses with over 500 employees provide retirement benefits for employees. So why is it that only 24 percent of businesses with less than 50 employees are actually taking advantage of this benefit? Many small employers see the path to starting a retirement plan riddled with roadblocks but we want you to consider that it might not actually be as difficult as you think for a small business to get into the 401(k) game. So no more excuses!
Excuse #1: My business is too small.
No business is too small for a retirement plan. Now that that’s settled, let’s move on.
Excuse #2: But there’s no way I can afford to offer a plan.
Did you know that for the first three years that your business has a 401(k) plan, you could qualify for a $500 tax credit each year? If you find a low cost plan, the tax credit could cover one-third of the cost per year for the first three years your company has a 401(k). According to Sharebuilder401k.com, “Your business must have at least one employee, besides you as the owner, who earns less than $115,000 a year to qualify for a tax credit. The tax credit is equal to 50% of administration and setup charges for your 401(k) with a cap of $500. It’s that simple.”
Excuse #3: What about after year 3? I won’t be able afford the management fees.
It’s a common misconception about 401(k) plans that there are high management fees. Actually, many low-cost solutions are available and there are some providers who even specialize in small business retirement planning.
Excuse #4: I cannot afford to match contributions.
That’s OK! You don’t have to. What’s more important is that you are giving your employees the opportunity to be more financially secure. And, if the time comes when you can include a match, great! If you do decide to contribute, all employer contributions are deductible on federal income taxes but you are in no way obligated to match.
Many companies avoid starting a 401(k) because they feel like it is too expensive. In reality, you can get started with very little cost, and the comfort and peace of mind that you bring to your employees is invaluable.