Small Business Owners Need a Plan

02 Jan, 2009

Small Business Owners Need a Plan

Posted by: earlhines In: Retirement| Small Business

Earl Hines

A retirement plan, that is.

401(k) Plans offer business owners valuable tax-savings

strategies and the best employees.

Do you own your business? If so, you already know that today’s employees are more

conscientious than ever about their retirements, and how today’s decisions could affect their future. Many Americans begin planning their retirement as soon as they graduate college (or even sooner!). That means if you aren’t offering a retirement plan, you may be missing out on the kind of highly motivated, self-directed employees you’ve been looking for. That’s right, your 401(k) can be used as a recruiting tool!

What about taxes?

Well, a 401(k) can provide both employers and employees valuable tax benefits. You can get a tax deduction based on salary deferral and employer contributions; your employees get tax-deferred growth of their assets. For 2009, employees can contribute up to 100% of their earned income, up to a maximum of $16,000 ($21,000 for workers over 50). By contrast, without an employee sponsored plan, the same employees can only contribute $4,000 pre-tax to a traditional IRA. Simply by offering a 401(k) plan, you dramatically enhance your employees’ ability to save for retirement. Also, by adding a profit sharing incentive, owners can generally benefit from significant pre-tax savings for their own retirement accounts simply by contributing a small percentage of company profits to their eligible employees.

So you want to offer a 401(k). Now what?

The first thing to consider is how much current interest there would be at work in having a 401(k) plan. Poll your current employees and find out two things: 1) how interested they are, and 2) what (if anything) would be a deciding factor for them that would make them enroll or not enroll. Next, you’ll want to determine the cost (both in terms of money and time) to implement your 401(k) retirement plan. There are many service providers who specialize in the implementation and management of employer plans, and in the end, the cost of offering a 401(k) is far outweighed by the pre-tax financial benefits you will receive as an owner. Getting started. The first step toward offering great retirement benefits is learning all you can about what options are available. With any plan you’ll want to carefully consider what investment options are available and how the plan will be administered. I would recommend that you speak with a qualified financial professional who can help you sort through the choices and determine which options will work best for your business.

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Tags: Retirement, Small Business

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