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Signs your small business may be ready to start a 401(k)

LAST REVIEWED Nov 03 2022 8 MIN READ

By The Human Interest Team

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Key Takeaways

  • Perhaps you run a business in a state where retirement benefits are required

  • Or maybe, you want to attract or retain top talent

  • Learn more about signs that show your small business may be ready to offer a 401(k)—and how to kick off the process when the time is right

Dog-friendly offices, snacks, hybrid work schedules. These are some of the perks offered by small businesses to keep their workers happy. Though this list may appear to be an assortment of random offerings, there is a common thread uniting them: they may be easy to manage, and are relatively inexpensive. 

But there’s another perk that’s become increasingly accessible to small and medium-sized businesses that may be often overlooked: the 401(k) plan.

Getting to know 401(k) plans

Misconceptions about this type of retirement plan are abundant, but among the most common is that they are either too expensive, too complex, or both for a small business to manage. But in many cases, they are neither

If you’re a small business owner who’s curious about what it takes to offer a 401(k),  you’re far from alone. According to the 2021 Small Business Profile from the U.S. Small Business Administration Office of Advocacy, there are 32.5 million small businesses in the United States and, for each there is a business owner or decision maker who has probably wondered if the time was right to start a retirement plan for their employees. 

Perhaps you run a business in a state where a retirement savings program is required by law. Maybe you want to attract or retain great workers. It could even be an important financial milestone that has turned your attention to the topic. Whatever the reason, this article is designed to help you make the right choice for your small business. 

Read on to learn more about signs that show your small business may be ready to offer a 401(k) and how to kick off the process when the time is right.

Tax incentives of 401(k) plans

The employee tax benefits of a 401(k) are fairly well known among most workers. Employee contributions to a 401(k) are tax-deferred, meaning that funds are not taxed until withdrawn, unless you have a Roth 401(k)

Business owners may be more familiar with the incentives for employers, which can include both tax savings (in the form of the tax-deductible match, nonelective or profit sharing contributions made by the employer) and tax credits (offered to eligible small businesses as part of the SECURE Act). 

For some, the choice to offer a 401(k) is simple and clear. For others, the choice involves numerous and complex interconnected considerations. One must account for timing, cost, administration concerns, market forces, and dozens of other elements. 

Making the right choice for your business and your employees can be difficult. But there's another element business owners should add to their calculations: themselves. 

Saving for your own retirement

With the bottom line at top of mind, it can be easy for small business owners to lose sight of themselves and their personal savings needs. Many do not realize that adding a 401(k) plan can be a win/win/win: the business benefits from tax perks, the employees are better able to save, and the business owner can tuck away funds for the future. 

As a contributor to the fund, a business owner benefits from the same tax advantages their employees enjoy. With the retirement crisis looming on the horizon, many of us are educating ourselves and otherwise doing all we can to boost our personal savings. 

Attract employees with a 401(k)

Finding and keeping employees can be tough, especially for small businesses. This was especially true during the so-called “Great Resignation” of 2021, when 47 million Americans quit their jobs. Most of the people taking part in the “big quit” were employed by small and medium sized companies. 

What does this mean for those loss-suffering employers? A lot of things, but one clearly stands out: there is more need than ever to hire the best talent, and keep them at your company. 

According to an employee experience analysis of a US Department of Labor study, company benefits and perks (along with company flexibility and “purposeful work”) are the things that matter most to job seekers. 

Whether trying to attract or retain talent, small and medium-sized businesses can think of the 401(k) as one of many meaningful elements of their total compensation package. 

State retirement requirements

In recent years, some states have put in place mandatory state-run retirement programs to help meet the savings needs of those living or working in their state. Generally speaking, these plans require eligible employers to either offer a retirement plan to their employees or participate in state-run programs. 

Eligibility requirements and other details vary by state, but we believe this is a trend clearly worth the attention of small and medium-sized business owners, many of whom are exploring options that include sponsoring and administering their own 401(k). 

When's the right time to offer a 401(k)?  

For employers who use an indicator like an important financial milestone to signal when it’s time to launch the plan, we think choosing when is easy. For example, creating a top-talent team is a great time to consider launching a plan because a top priority will be to retain those employees. 

However, this is only part of the process. Selecting plan particulars, implementation dates, and details of administration are all steps in the process of offering the right 401(k) for your business. 

Still unsure when to offer retirement benefits?

Given the complexity of this choice, it’s no surprise that some business owners can be overwhelmed by the decision. Even with a wealth of tips to help you determine the signs that your small business may be ready for a 401(k), the first steps can be daunting. 

Human Interest is just a click away and can help you navigate the process. 

*Alison Hunter is an independent contractor commissioned by Human Interest to help contribute to this article.

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.