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Evaluating 401(k) Plans for Small Business

Submitted by Life, Inc. Retirement Services on November 28th, 2018

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One of the challenges a small business owner faces is finding the right retirement plan. While some may feel a 401(k) is too cumbersome, there are reasons why a 401(k) is often the best option, even if your business is very small. However, before deciding on the right plan, it is crucial to carefully evaluate plans as well as the current, and future impact on your business.

Factors to Consider When Selecting a Plan

One of the first factors is the size of the company. A sole proprietor and a company with employees may require different types of retirement plans, although both may opt for a 401(k) plan. Here are some of the issues to be considered when considering a plan:

  • Size of Business – while a sole proprietor may wish to consider a different plan, one reason to consider a 401(k) is to account for future growth. Having an existing 401(k) plan in place means you have a valuable recruiting tool when you start expanding your staff.
  • Ease of Enrollment – thanks to lesser rules which apply to small businesses, a 401(k) plan can have provisions to automatically enroll new employees. This means less administrative burden on your company and less concern about compliance matters.
  • Flexibility of Investments – one of the most important factors to be considered is the breadth of investment options. This is particularly true if you have employees in different age groups. A younger employee may be willing to take more significant risks with their 401(k) investments while an older employee may prefer a more stable investment. This is important to determine ahead of time, particularly since a company who has a lower retention problem will likely need a broad base of investment options.
  • Administrative Burden – the last thing a small business owner needs is additional paperwork. When searching for a plan, it is important to determine ahead of time the amount of time you will be required to dedicate to dealing with plan paperwork. Having the right company working on your 401(k) plan will ensure the burden of administering the plan will be handled by the outside company.
  • Fees Involved in Plan – a big factor in determining the suitability of a 401(k) plan for your small business is the fees for the plan. While the IRS allows most small businesses to deduct a portion of the fees for the initial setup, there are ongoing management fees which must be considered.

Working with the Right 401(k) Administrator

Once a business owner, or manager has an opportunity to carefully evaluate their options for a 401(k) plan, they must find the right administrator for the plan. This means thoroughly reviewing their qualifications, the level of service they are providing, and the quality of the plans offered.

In addition to offering customized solution to your plan needs, the right plan administrator should also be addressing the required paperwork. These filings are required under ERISA Title I and Title IV as well as the Internal Revenue Service (IRS).

Another factor when considering a small business 401(k) plan is the administrator's experience in dealing with small business plans. While many plan administrators are well-versed in dealing with plans for a large company, many do not have the experience to deal with small business 401(k) plans.

When you need a customized retirement plan solution for your business, consider the benefits of working with Life, Inc. Retirement Services. We bring a unique perspective because our focus is on small business needs. Your need a plan administrator who will work with you to customize a 401(k) plan that fits your needs and meets your company objectives. Contact us today at 614-396-7652 or by Email at info@lifeincrs.com for a free consultation and let us help you design the right 401(k) plan for your business.

 

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A 401(k) Plan Provider Can Help Lower Your Company's Tax Burden

Submitted by Life, Inc. Retirement Services on August 31st, 2018

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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.

 

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Myths About Small Business Retirement Plans, and Why You Need One

Submitted by Life, Inc. Retirement Services on June 28th, 2018

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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. 

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How to Double Enrollment in Small Business 401(k) Plans

Submitted by Life, Inc. Retirement Services on June 22nd, 2018

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Millennials don't save money.

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Understanding the Tax Benefits of a 401(k) for Businesses

Submitted by Life, Inc. Retirement Services on June 7th, 2018

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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.

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Small Business Retirement Plans: How To Get Started

Submitted by Life, Inc. Retirement Services on May 22nd, 2018

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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.

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Most Small Businesses Miss Out on Important Important Tax Benefits By Not Offering a 401K Plan

Submitted by Life, Inc. Retirement Services on April 13th, 2018

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With the average Social Security check just $1,404 per month in 2018, starting a small business 401(k) retirement plan is a great way to help your employees secure their financial future.  It also increases employee loyalty by demonstrating that you care about your worker's financial well being. Another big benefit is that a small company 401(k) offers tax advantages for both you and your employees.

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How Hiring a 401(k) Company Benefits Your Employees

Submitted by Life, Inc. Retirement Services on April 11th, 2018

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As a small business owner you know that hiring and retaining talented employees is key to your company's success.  One way to attract top people is by offering a small business 401(k) retirement plan.  Not only does doing so make your company more attractive to prospective employees, it builds trust with your current workers by telling them that you are interested helping them secure their future. 

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Here Are Seven Reasons All Small Businesses Need 401(k) Plans

Submitted by Life, Inc. Retirement Services on April 5th, 2018

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If you own a small business, you want it to be successful. Naturally, you need good employees to work for you to make that happen. To attract the best talent for your company, you need to provide more than just good salaries and bonuses. It is critical that you also offer a 401(k)-retirement plan, if you want the best potential employees to consider your company, rather than  a competitor. 

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Don’t Assume Offering a Small Business 401k Is Impossible

Submitted by Life, Inc. Retirement Services on February 2nd, 2018

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Small business owners often find themselves in a difficult position when it comes to offering employee retirement plans. Lack of information and assumption can cost them the opportunity to give their employees the chance to have a valuable benefit that could end up serving the needs of the business quite well.

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