401(k)s for Small Businesses and Startups


By The Human Interest Team

Key Takeaways

  • There are plenty of reasons why small businesses don't offer 401(k)s.

  • Find out the pros and cons of 401(k) plans.

  • Learn about the benefits that come with offering a 401(k).

Historical Challenges for Small Businesses

Historically, there were plenty of reasons why small business owners didn't offer a 401(k) More traditional providers would only work with larger companies, because the administration of a plan used to take a lot of time and effort in order to make sure that money was moved appropriately, and that all rules and regulations were met. Additionally, providers charge a fee based on the percentage of assets that a given plan had, and as such were incentivized to work with companies who had a lot of money.

Luckily, those days are over. Plan administration has become easier than ever thanks in large part to technology - and that's great news for small business owners. Rather than having to worry about the nuts and bolts of plans, companies like Human Interest are able to help offload the administrative burden, driving costs down in the process.

Whether you're a doctor, a lawyer, a dentist, a startup, or any small business in America, a 401(k) plan might be more attainable than you previously thought.

Pros and Cons of a 401(k)

While there are definitely pros and cons to starting a 401(k), the former is far outweighing the latter in recent years. First, it's a great way to recruit and retain employees without spending too much of your valuable time as a business owner. It's becoming increasingly easier to outsource all of the administrative work associated with operating a 401(k), so you can spend less time on back-end work and more time on what matters most: running your business.

Additionally, a 401(k) can cost less than a single employee's health insurance, making a retirement plan an extremely high ROI benefit. What's more, there are tax benefits that come with starting and maintaining a plan: both for your employees and for the company itself, as we'll get into below.

There are also a few potential drawbacks to offering a retirement plan: while it is inexpensive, it does still have an associated cost, and may not be the right fit if you don't already have other benefits like health insurance. There is also the fear of a lack of financial literacy, and the worry that employees might not actually take advantage of the plans. It's for this very reason that we offer financial advising through Human Interest Advisors, LLC to make sure that companies have a resource for their employees to make the most of their retirement plans.

Tax Benefits for a 401(k)

One of the most common sets of questions people have about 401(k) plans is around taxes. There are a ton of tax advantages of offering a retirement account, but it's important to distinguish between the tax advantages for a business and tax advantages for an employer.

As an employer, you can not only qualify for a tax credit for offering a 401(k), but if you are generous enough to match the funds of your employees, those are actually tax-deductible as well. That means you can simultaneously provide a boon for your bottom line, but also for the well-being of your employees.

As an employee, you can lower your taxable income with contributions to your retirement account. This is because you’re deferring taxation until retirement, when you’re more likely to be in a lower tax bracket than you are during your working years.

We believe that everyone deserves access to a secure financial future, which is why we make it easy to provide a 401(k) to your employees. Human Interest offers a low-cost 401(k) with automated administration, built-in investment advising, and integration with leading payroll providers.

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