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

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

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401(k) Retirerment Account Statements

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.


Finding the Right 401(k) Plan

The 401(k) plan you select will depend on what types of employees you have. For example, if you intend only to hire part-time employees, or do not plan to have employees, a solo 401(k) may be right for your business. If you plan to hire full-time employees then  a Solo 401(k) will not work for your needs.

Solo 401(k) Plan

If you have no employees working for your company or just part-time, a Solo 401(k) is an option. Keep in mind, you may also use this plan if your spouse works with you. You can deduct up to $55,000 into a 401(k) plan for the tax year 2018. These plans work best for those business owners who do not intend to have any employees working with them except for their spouse. Regardless of business structure, there are tax benefits to this type of retirement plan. For a sole proprietor or an S-Corporation, the amount deposited reduces your personal income and for other business structures, your corporate tax is reduced. You should speak with someone who has experience with these types of plans to understand the additional tax benefits, including the possibility of deferred contributions.

Standard 401(k) for Businesses

For any business owner planning on having employees other than their spouse, a standard 401(k) plan still provides excellent tax benefits. Some of these include:

  • All contributions made by the employer are tax deductible
  • All assets in the 401(k) plans grow without taxes
  • There are several options available for employers, making the plans flexible
  • Most business owners who start a plan will enjoy tax credits as well as other incentives which can help them reduce the cost of a plan
  • Business owners who can provide the added benefit of a 401(k) plan with matching benefits often finds they are able to find and retain higher-quality employees. While this is not a direct taxable benefit, it does save your company money.

Business owners considering a 401(k) plan should work closely with a company who will help them set up and administer their plans, so they understand all tax benefits plus the ongoing costs associated with the plan. The right administrator will inform you of the best structure for your company and help you design a plan, provide all government provided forms to you and your employees, as well as help your employees when they are seeking to withdraw funds from their 401(k).

Retirement Plan Selection

While many business owners offer a retirement plan for their employers, it is important for a business owner to make sure they have selected the right plan. Many business owners avoid a 401(k) plan in favor of other plans because they feel the 401(k) is too complicated. However, because these plans allow for higher deposits, and the IRS continues to offer incentives for these types of plans, the 401(k) should be considered even for small and medium sized businesses.

Whether you are a sole proprietor, a small business owner with plans to hire employees, or you have current employees, you should consider starting a company 401(k) plan. At Life, Inc Retirement Services we work with small business owners to provide them a customized 401(k) solution to meet the needs of them and their employees. Contact us today at 614-396-7652 and let us help you decide which 401(k) solution best meets the needs of your business.

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