For small businesses that are ready to help their employees save on retirement, the IRS website includes the steps needed to set up a 401 (k) plan. How to set up retirement plan for small business?
Why set up a retirement plan
The retirement plan for small businesses is simply a good business on many levels. It has benefits for you, your employees (if you have one) and your company.
- Start saving quickly. As a small business owner, retirement planning is entirely up to you. And if you hire others, you’ll also help them find their way to retirement.
- Take advantage of tax breaks. All retirement plans offer deferred income tax. As an employer, you also benefit from employer’s deductible tax deductions.
- Give your money a chance to grow. In addition to contributions to your plan, the sum of interest, dividends and capital gains allows your account to generate profits in addition to earnings.
- Attract and retain employees. Offering a retirement plan for employees can ensure competitiveness in the labor market and help the company grow.
The retirement plan for small businesses attracts talent
Creating a retirement account for a small company is a powerful recruitment tool for three reasons:
First of all, you have a strong belief that your company will last for a long time. Do you want to apply for a company that could disappear in just one year? Employer-sponsored number 401 (k) proves that you have long-term financial commitments with your business and employees.
Secondly, employer-sponsored retirement accounts cost less than you think. In June 2016, the average cost in the private sector for retirement and savings was $ 1.27 per hour worked, or 3.9% of the total compensation.
Third, you allow your employees to effectively reduce their taxable income this year and defer taxes until they retire when they are more likely to be in a lower tax group. For example, in 2017, a single entity with an annual salary of USD 60,000 would have a tax liability of USD 10,738.75.
Look for plan administrators
Time is money. Trying to meet the time requirements associated with managing different types of 401 (k) plans may not be a realistic option for an overworked business owner. So, consider outsourcing your 401 (k) administration and get quotes from several suppliers.
When interviewing potential administrators of small business retirement plans, be sure to ask for fees that depend on these five criteria:
- Asset size: Percentage of total dollar amount in plan. Often between 2% and 3%.
- Number of employees: Value in dollars for each eligible employee or actual participant in the plan.
- Plan Type: A series of recurring expenses that vary depending on the plan and the number of transactions required to complete the plan.
- Fixed cost: a fixed lump sum applicable to all plans.
- Configuration cost: the cost of setting up the plan.
Also, don’t forget to ask about the costs for your employee. Each 401 (k) plan administrator charges a percentage of the plan participants. Watch your employees – research has confirmed that low investment cost is the only important predictor of investment fund results. The lower the investment fee, the better the return on investment.