401(k) Plans Benefit Everyone–Even Small and Self-Employed Business Owners
401(k) plans are the primary choice for retirement savings of many professional Americans in 2022. In 2001, changes to federal tax law made the 401(k) plan a smarter, more flexible choice for many business owners. There are many specific advantages to starting a 401(k) for your business, whether you run a small business or are the sole proprietor of your own company.
401(k) plans help attract the best and most qualified talent to your business. A 2018 401(k) participant survey from Charles Schwab reported that 88% of employees say a 401(k) is a must-have benefit when looking for a job. More and more contemporary companies understand the advantage of offering 401(k) options to their employees, and you do not want to be left behind. Further–and perhaps most importantly–once hired, most small business employees do utilize a 401(k) plan when it is offered.
If you run a small business, setting up a 401(k) for your employees may feel daunting at the outset, but with the implementation of payroll integration technology and other advancements, doing so is simpler than ever before. Modern 401(k) technology also offers robo-advising and automated, streamlined administration to get your business online. Of course, there are initial costs to both setting up and administering the plan and to teach employees about the plan’s existence and how to use it. The long term benefits will far outweigh these preliminary costs.
If you are self-employed, it may behoove you to look into the self-employed 401(k) plan, which is specifically designed for small business owners who are sole proprietors (along with a spouse or domestic partner) of their business. In this instance, the business owner contributes to the plan for both employee and employer. Likewise, the sole proprietor will be able to both make withdrawals and pay their taxes upon retirement. In 2022, business owners can annually contribute $61,000 to a self-employed 401(k) plan. Any business owner who generates a net profit from an LLC, sole proprietorship or other business entity can open such a 401(k) plan provided their spouse or domestic partner is the only person who could be considered an employee.
It is also key to know that small business owners and their spouses may take advantage of higher contribution limits, which heightens the appeal of the 401(k) versus the more traditional IRA plan. Clearly, if your business expands and you hire other employees, you must adjust your existing plan to create retirement benefits for them.
401(k)s are exceptionally useful in retirement saving, but often need some skilled navigation to understand the best options for your business. Let WR Wealth Planners help you navigate the process of setting up a 401(k). With our eye on your financial future, it’s our commitment to help you reach your goals every step of the way.
