5 signs your small business is ready to launch a 401(k)

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Key Takeaways

  • A 401(k) benefit can be a powerful recruiting and retention tool for businesses of all sizes

  • Retirement savings plans can provide tax benefits to employees and employers

  • Learn more about some top indicators that it may be time for your small business to launch 401(k)

For small businesses looking to grow, it’s often customer-focused in the beginning. Get the sales, achieve consistent growth, and increase cash flow. But if you’re looking to attract and retain top talent, sooner or later, employees’ needs start to factor into the mix. Are you seeing signs that it’s time to launch a 401(k)?

Offering a 401(k) for your employees can be essential (and a benefit they very much want), but knowing the right time to do so is key. Below, we’re diving into the details of retirement savings plans and exploring five milestones that indicate your small business is ready to launch a 401(k).

Questions to ask to know if your business is ready for a 401(k)

  • Are you in a competitive marketplace for employees?

  • Do you have an immediate need to manage taxes better?

  • Is it a priority to reward current employees and keep your best talent?

  • Have you started saving for your own retirement yet?

  • Has your business reached a financial milestone recently?

What should employers know about 401(k) plans?

Offering a 401(k) has many benefits for small employers, including potentially enhancing your company's ability to attract and retain top talent. Benefit packages are a key differentiator in today's competitive job market. According to an employee experience analysis of a US Department of Labor study, benefits and perks (along with company flexibility and “purposeful work”) matter most to job seekers. According to a Human Interest survey from 2022, retirement benefits are the second most-wanted benefit after health insurance.

401(k)s are considered defined contribution plans that provide both employers and employees a flexible way to save money for retirement. When offered, employees may choose to set aside a portion of their salary for retirement, with both employees and employers contributing. Contributions are often made pre-tax and taxed only upon withdrawal at retirement.

401(k) plan funds are commonly invested in various options like mutual funds, stocks, and bonds. Some plans offer Roth deferral contributions, which use after-tax dollars and are distributed tax-free, including related earnings, if certain conditions are met.

Reasons your small businesses should launch a 401(k) plan

From financial milestones to taxes to talent (both attraction and retention), there are many signs that a business should consider adding a retirement savings benefit. If you are wondering how to know your small business is ready, read on to explore the five signs that it’s time to launch a 401(k) plan.

1) You want to improve employee retention and attraction 

Attracting and retaining top talent in a competitive job market can be challenging. Think of all the hard work it takes to find the right people to fill the roles in your business. Or, consider what happens when you have a great employee, but they leave your company for a competitor with better benefits. 

Gone are the days of employees being afraid to discuss their compensation or other personal details. With social media making conversations about investing and retirement more the norm, it’s no surprise that a retirement savings plan is one of the top requested benefits for small business employees. Whether you want to keep the team you have or add to it, offering a 401(k) plan can help attract top talent and retain valuable employees by providing a competitive benefits package.

2) You’re looking for all-around tax advantages

There are many advantages to saving money with a 401(k) for your employees. Leveraging pre-tax deductions, they can lower their taxable income (and even potentially move to a lower income tax bracket). Additionally, pre-tax contributions grow tax-free, and the money is tax-sheltered until funds are withdrawn in retirement.

But did you know offering a 401(k) plan can also benefit small business employers? For starters, small businesses may qualify for up to $16,500 in tax credits to reduce or even eliminate initial plan costs over the first three years. Additionally, employer contributions made by the business to the 401(k) plan are typically tax-deductible. This means your business can deduct contributions (up to a limit) from its taxable income, reducing its overall tax liability. Finally, plans that offer an employer matching or non-elective contribution may be eligible for additional tax deductions. 

3) You’d like personal retirement savings, too

Saving for retirement shouldn’t just be a priority for your employees; you should also remember to contribute to and safeguard your own retirement savings as well. A 401(k) plan allows small business employees — and owners — to save for retirement with pre-tax contributions, potentially growing wealth over time. As a contributor to the fund, you as a business owner benefit from the same tax advantages your employees enjoy. Contributing to your 401(k) using pre-tax dollars from your paycheck can help lower your taxable income for the current tax year.

4) You’d like to meet—or get proactive–with legal requirements

While current federal law does not require private-sector employers to provide a retirement plan, many states have passed laws that require businesses to provide some form of a retirement plan. For small businesses in the states with retirement legislation, now is a great time to get ahead and understand your options. 

Oftentimes, using the state-provided auto-IRA plan is not required. Instead, it’s mandatory to provide a qualified plan to your employees, which means that employers have options, including a 401(k). By offering a 401(k) plan your small business can demonstrate a commitment to employee financial well-being while mitigating risks and costly penalties associated with non-compliance.

5) You’d like to give your small business a competitive edge 

As we’ve reviewed, a 401(k) plan can be a strategic move for small businesses, helping them compete with larger companies for talent. It can help position you as an employer who invests in their employees' futures, regardless of your size. Additionally, providing a 401(k) can reflect positively on any company's reputation. It can help show that the business is financially stable and committed to supporting its employees' long-term financial goals, which can enhance its brand image and attract customers who prioritize ethical and responsible business practices.

At what stage should my company have a 401(k) plan?

Are you wondering if your small business has reached the stage of needing a 401(k) plan? There are three key indicators that might be signaling it’s time:

  • Increased cash flow: When your business has stable cash flow, it may be a good time to consider implementing a 401(k) plan.

  • Increased employee count: As your workforce expands, offering additional benefits like a 401(k) can become more appealing to attract and retain top talent.

  • Financial stability: Ensuring your business is financially stable enough to handle the administrative costs associated with a 401(k) plan is crucial before implementation.

Getting the signs it’s time? Human Interest is here to help

We get it. If you’re a small business, decoding the signs and deciding to launch a 401(k) can feel like a huge step. (And you might have a few questions about how much it might cost you). That’s why we’re here to help. 

By understanding the basics of a 401(k) and working with a modern 401(k) provider, getting started can be easier than you might think. Tech-forward providers can help small businesses set up customized, full-service retirement plans with transparent pricing and zero transaction fees.

At Human Interest, we offer full-service, transparently-priced 401(k) retirement plans that make it easy for small businesses to help employees save for retirement. Contact us today to get started.

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 education, and integration with leading payroll providers.

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