Intro to the 401(K) For Businesses
The 401(k) is one of the greatest wealth building tools available to Americans, and it’s becoming increasingly more accessible to small and medium size business owners and their employees.
A 401(k) is a tax-advantaged investment account offered by companies that allows employees to save a portion of their paycheck for their longterm financial goals.
Each time you make a contribution toward your 401(k), it
Reduces taxable income
Lowers tax liability for the year
Allows investments to grow tax-deferred
Employers can match contributions, and the plan's funds are invested, offering potential growth through dividends, interest, and capital gains.
A Little Goes a Long Way
The power of compounding returns makes a big difference over time.
Saving just $5/day for 50 years gets you to about $91K (but taking inflation into consideration, that’s $33,937 in today’s dollars). But investing the same amount over 50 years has much more potential.*
*Assuming a 7% annual rate of return based on the long-term average stock market return of 9% less average inflation of 2%. To see more visual representations on investing and why when you start investing matters, go here.
Why do most businesses offer retirement plans?
Nearly 3 in 4 employees say that financial stress negatively affects their work and personal lives.
73% of financially stressed employees say they would be attracted to another employer that cares more about their financial well-being.
01. Morgan Stanley State of the Workplace Study02. PwC's 2023 Employee Financial Wellness SurveySetting up a 401(k) plan is a strategic decision for small businesses aimed at enhancing their benefits package and supporting their employees' financial future. Offering a 401(k) is becoming increasingly common as a means to attract and retain talent – over 70% of private sector workers now have access to a 401(k).
While not federally mandated, some states do have mandates, and those who don’t follow suit are rolled into state sponsored plans that are often not competitive on fees. Learn more about that here.
Related Legislation
The SECURE Act of 2019 is perhaps one the most important piece of federal legislation pertaining to 401(k)s for small and medium sized businesses. It eases the process for small businesses to set up 401(k)s, offering tax incentives and allowing part-time employees to participate.
Learn more about other laws governing 401(k)s here.
3 Tax Credits That Can Help Cover Your 401(k) Costs
The Startup Credit: You can receive up to $5,000 for the first three years to help cover the expenses of offering a 401(k) plan, directly reducing your business’s federal income tax liability on a dollar-for-dollar basis.
The Auto-Enrollment Credit: By adding auto-enrollment to your company’s plan, you may qualify for a $500 tax credit annually for the first three years. All Saveday plan options are eligible for this credit.
The Employer Contribution Credit: Small businesses that provide an employer contribution to their 401(k) plan could receive up to $1,000 in tax credits for each eligible employee.
Want to learn more about tax credits you’re eligible for and designing the right plan for your business? Book a free consultation here and our experts will help you find what you need.