If you plan to offer a small business 401k to offer to your employees, they'll love you for it. According to a survey in 2015, Glassdor,found 31 percent of employees would like to have a retirement plan at work, and 79 percent want additional benefits, rather than more money. Previous online surveys have also reported that a number of workers would leave for one with a 401k, if their current job does not offer one. While adding a retirement plan might help you retain good current employees and attract new ones, because many companies do not offer a retirement benefit anymore, you don't want a cookie cutter or one-size-fits-all plan. Here's why and how a professional 401K company can help.
Retirement Services & Financial Advisors - Serving Columbus & Beyond
One of the best ways to make your employees happy and less likely to leave your company and take another job may be to offer a small business retirement plan. In fact, nearly half of American families have no retirement savings account, even though the average retirement savings of American families is $95,776. That number can be deceptive because the median amount of savings for families is just $5,000--hardly enough for a healthy retirement. That counts those with savings and those without. The median amount for those with savings is $60,000. It's no wonder many American employees surveyed have said they would leave their job that has no retirement plan if they had a chance take one with a good plan. Other reasons to offer a plan include the tax savings for business owners and retirement advantages for them.
Establishing a 401(k) plan for your small business is a great way to attract top talent and increase employee retention rates by helping your workers secure their financial future. Setting up a 401(k) also offers significant small business tax advantages. Yet as a small business owner, you might not know what these advantages are or how they can help your company save money.
Startup Tax Credit
When your business sets up a retirement plan for the first time and meets certain criteria, the federal government may offer your company a $500 tax credit for each of the first three years of the plan for a total credit of $1,500. This is known as the Credit for Small Employer Pension Plan Startup Costs and is designed to cover 50% of the plan's startup expenses, including administrative costs, employee education costs and more.
According to the IRS, your company may be eligible for the credit if:
- It had 100 or fewer employees who received at least $5,000 in compensation in the previous year.
- It had at least one plan participant who was not considered a highly compensated employee (owned more than 5% of the business or earned more than $120,000).
- In the last three years, no employees received benefits from another qualified retirement plan from your company.
Matching Contributions Deduction
A company 401(k) plan not only helps your employees save for their future. It also helps your business lower its tax obligations by letting you deduct the matching contributions that you make to your workers' retirement accounts.
In 2018, the maximum an employee can contribute to his retirement account is $18,500 (not including catch up contributions for people age 50 or better), while the maximum an employer can contribute to each worker's retirement account is $36,500 (the total "all sources" maximum contribution - employer and employee combined - is $55,000).
Imagine that you have 10 employees each making $40,000 annually and contribute 3% ($1,200) to each of their retirement accounts every year. That annual $12,000 ($1,200 x 10) is tax deductible. If it takes six years for employees to fully vest, that is $72,000 to the employees and the same in deductions for your business. So not only does your company 401(k) plan demonstrate your commitment to your workers. It lets you keep more money in your company's coffers.
Tax Savings vs Plan Costs
How much your company's 401(k) plan costs depends on a variety of factors, but if you choose the right retirement plan provider, the expenses can be kept to $1,000 or less. As a business owner, you can also participate in your company's plan. This means that on top of the tax savings your company receives for offering the plan and providing matching contributions, you also receive personal tax advantages by participating.
For example, if you are 38 years old, contribute $15,000 to your personal retirement account and are in the 24% tax bracket, then you could save approximately $3,600 on your tax return. This outweighs the cost of administering your company's 401(k) by three times or more.
Even with these obvious tax benefits, many small business owners do not offer a retirement plan. Some think that the administrative tasks would be too time consuming and burdensome. Others say that retirement plans are too expensive and only for large companies.
The truth is that when done right, establishing a company retirement plan is painless and relatively affordable, even for a small business. The key is to hire the right provider firm, one that has the experience, know-how and resources to smoothly set up and administer the plan. If you are ready to help your employees save for their retirement and simultaneously help your company lower its tax burden, then it is time to talk to a small business retirement plan provider to see what it can do for you.
Sometimes sage old advice--to include the claim that small businesses can't afford to offer retirement plans--is just old advice.
In an economy where GDP growth is on pace for a 13-year high, unemployment is at an 18-year low, and consumer confidence is at a 15-year high, you don't need to be a publicly traded corporation to offer retirement plans to your workers. Better yet, you don't need to hire a publicly traded corporation to administer a retirement plan for your workers. And in fact, to grow out of small business status, a retirement plan is exactly what's needed.
Life, Inc. Retirement Services is here to help.
Times Change - Change With Them
When times are good, employers in all industries compete for workers. And they compete by luring them in with higher wages and better benefits. Higher wages can lead to wage inflation, which increases the costs of products or services because the added costs of production are passed on to consumers. This benefits employers about as much as it benefits workers: none. Unless wage inflation increases in tandem with productivity, the employer takes a hit to profits and the workers pay more for goods and services elsewhere in the marketplace.
Why does this matter to a small business owner? Because in a world that is always changing--a world where conventional wisdom is only wise for as long as it takes the daily news cycle to make it unoriginal--there's another option.
Boost Retirement, Not Wages
Instead of contributing to wage inflation, employers can instead choose to invest in their workers. For small businesses that are starting to feel the tax burden of being successful, there's a built-in perk of offering retirement plans to workers: employer contributions are tax deductible. On top of that, the IRS offers tax incentives for small businesses just starting out with a retirement plan for their workforce. And best of all, the money employers contribute stays with the plan if the employees leave. Called "vesting," this conditional contribution stays with long-term employees only, which incentivizes longevity and thus slows turnover and saves companies on hiring and training costs.
Don't Settle for Cookie-Cutter Plans
Dunkin' Donuts doesn't have the same mission, workforce, or even product as Carl's Kitchen Cabinets, and yet most big banks or payroll services will offer 401(k) plans that are indistinguishable from company to company. It's important to recognize that in today's economy, retirement planning is not an exclusive, one-vendor industry. Don't think that you have to settle for a one-size-fits-all plan just because you're small, new, or inexperienced in dealing with retirement plan options.
Our goal to "keep it simple" doesn't mean that you have to accept a retirement plan that's generic. On the contrary. At Life, Inc. we achieve exemplary customer satisfaction not by offering the same cookie-cutter retirement plans that the big banks hoist on unknowing customers, but by customizing a plan to meet your specific needs. This includes tweaking participation parameters to curb costs, adjusting vesting schedules, weighing the pros and cons of safe harbor plans, and even forecasting future workforce demographics and the effects of projected company growth. The point of offering a retirement plan isn't just to use it as a recruiting tool, though that is definitely part of ti. It's about offering a benefit that actually works, that achieves maximum saving for employees, that takes advantage of all available tax advantages, and that also boosts employee longevity.
If you're considering a retirement plan for your small business, don't settle for a quote-unquote "no frills" one-size-fits-all plan that's created to maximize their profit instead of your needs.
Choose a plan that is custom designed specifically to your industry, size, and growth model.
Choose a team of real people with real phones on their desks, not 800 numbers with automated self-help menus.
Choose Life, Inc. Retirement Services.
Contact us today to learn more.
If you are a small business owner, there are a lot of myths people may have told you about small business retirement plans. Don't listen to them. Here are a number of the myths you may have heard and some of the reasons you need a retirement plan, including tax benefits.
Millennials don't save money.
As a small business owner or operator, you may think having a 401(k) plan is too costly and confusing. What you may not be aware of is that a 401(k) plan can be designed to fit your needs and there are tax benefits offered to small businesses who participate in these plans.
Everyone wants to retire at some point or another. Some want to retire sooner rather than later. As such, it's important to consider 401k for business owners. If you're a small business, you want to think about how you can retire when you're ready. Additionally, you want to be able to attract top talent – and that means offering them the best 401k providers, too.
The U.S. unemployment rate just dropped to 3.9%, a level not seen since the year 2000. While this is definitely good news, it also creates small business hiring challenges. Attracting top talent is hard enough, but it is even tougher in this kind of a marketplace, where nearly everyone who wants a job has one. So as a small business owner, you have to come up with innovative ways to recruit talented people. One way to do this is by offering a robust 401k retirement plan from a 401k company.