If your business has only a few employees, you may think you're too small to offer a 401(k) plan. But even entrepreneurs have to retire someday, and there's no time like the present to start planning for the future.
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"Most small businesses don't offer 401(k) plans, but it's good for the nation as a whole to start saving for retirement," said Paul Davidson, director of product management at payroll processing firm Paychex. "It's not just about the [individual] benefits; there's a social good that comes from establishing more 401(k) plans."
While it may not make much sense to implement a formal retirement savings plan as a sole proprietor, businesses with as few as two or three employees can actually profit from starting a plan. A new federal regulation allows startups with fewer than 100 employees to receive a $1,500 tax credit spread out over three years when they create a new 401(k) plan, Davidson said. [Retirement Strategies for Every Age]
"Even if you only have three people who want to participate, the tax savings makes it a profitable decision," he told Business News Daily.
Davidson offered the following tips for small business owners who are thinking about starting a 401(k) plan:
- Find a vendor you trust. The process of establishing a retirement plan for your company can be complicated, so make sure that the vendor you choose has the experience to lead you through the decision-making process. Employers that offer 401(k) plans have to deal with annual compliance testing, making payroll contributions on time and ensuring employees have all the proper information. The right partner will handle all that and make it easy for you.
- Do your research on investment options. Every 401(k) provider has different types of investment options, and it's important to know what you want before you decide on a provider. Look for a company that has a wide range of investments that you feel good about. If you're unsure of your options or investment strategies, spend some time doing research or speak with a financial professional.
- Educate yourself and your employees. Establishing a retirement plan is a big step for your company, and with that step comes a lot of information that you'll need to learn and pass on to your plan participants. Make the time to educate your employees on the program, and help get them signed up. Good communication about the plan will help your staff feel secure and confident in their investments for their future.
Originally published on Business News Daily.