Hesitation is common and understandable, but implementing a 401(k) plan can be a game-changer for your business. Let’s talk through some of the key benefits and challenges of offering a 401(k) plan, and how 401GO is upending the industry to make it much less painful.

The Benefits

Around ⅔ of American companies offer a retirement benefit to their employees. What makes it so valuable to these businesses?

• Attracting and retaining top talent: In today’s competitive job market, top candidates are looking for more than just a good salary. According to Forbes, retirement plans are the third most important benefit to employees, after only healthcare and life insurance. A 401(k) plan can significantly boost employee morale and loyalty, leading to higher retention rates.

• Tax advantages for the company: Tax benefits are one of the most compelling reasons to offer a 401(k). Contributions you make to your employees’ accounts are tax-deductible, reducing your overall tax liability. And, your startup may qualify for tax credits to offset the costs of setting up and administering the plan.

• Long-term financial security for employees: For a startup, 401(k) plans can reduce employees’ stress and improve their productivity. Knowing that they have a solid retirement plan can allow employees to focus more on their work and contribute more effectively to your company’s success.

The Challenges

Young and small companies have unique needs, making a retirement benefit feel out of reach.

• Initial setup costs: Setup expenses such as fees for plan design, legal services, and setting up administrative processes can be a barrier of entry for many small businesses and startups.

• Ongoing administration: For a startup with limited resources, the ongoing responsibility of managing employee contributions, handling plan documentation and employee notifications can be daunting.

• Regulatory compliance: 401(k) plans are subject to strict regulations and compliance requirements set by the IRS and the Department of Labor. Keeping up with these regulations demands a thorough understanding and diligent management, which can be challenging for a small team.
• Financial strain on a growing business: Balancing the desire to provide attractive benefits with the need to maintain financial stability is a common challenge for many startups.

The Good News

There are ways to alleviate the challenges that businesses face when offering a 401(k) plan, and in some cases, removing them altogether.

First, choose the right plan provider. Look for a provider who offers comprehensive services, including plan setup, administration, and compliance support. 

Next, minimize costs by starting with a basic 401(k) plan that meets essential requirements. You can always enhance the plan’s features as your startup grows. 

Last, leverage technology to simplify plan administration. Look for plan providers that offer user-friendly online platforms for managing contributions, compliance, and reporting.

Consider using 401GO as your retirement plan provider. Built for small businesses, we handle all administration, recordkeeping, and compliance for the plan, effectively eliminating the admin burden for the business owner. We offer a wide range of plan types to accommodate your circumstances, and our setup time is an astounding 15 minutes. Competitive pricing saves you thousands of dollars compared to legacy retirement providers. And, our technology is second to none. The 401GO platform is heavily automated and easy to use, which drives down costs for small companies.

With 401GO, you can maximize the benefits of offering a retirement plan while minimizing the challenges that you will face. The decision to offer a 401(k) plan should be based on a careful assessment of your startup’s resources and long-term goals. With thoughtful planning and execution, a 401(k) plan can become a valuable asset for your business, helping you build a motivated, loyal, and financially secure team.

The post Why Your Startup Needs a 401(k) Plan Today appeared first on Fast and Affordable 401k for growing businesses.

Let’s take a look at how it works and what options you have as a small-business owner who wants to help their employees save more for a secure retirement and strengthen your business’s standing at the same time.

401(k) Plan Sponsor Options

Even if you aren’t a savvy financier, you are likely aware of the difference between traditional and Roth 401(k) plans. With a traditional 401(k) plan, employees (and business owners) make pre-tax contributions to their retirement accounts, putting off paying taxes on these earnings until they begin drawing on them after retirement. With a Roth 401(k), contributions are made after payroll taxes are taken out, meaning no taxes will be paid on these funds upon withdrawal. This second option is often more appealing to the youngest workers, who are likely to be in a higher tax bracket upon retirement, and thus stand to lose more to Uncle Sam. Regardless, there are pros and cons to each option for employees of every age.

Whether you handle your own payroll or you outsource this task to another company, it’s easy to get up and running with 401GO, and once you do, your job is done! 401GO provides seamless payroll integration, so once you finish setting up your 401(k) plan, you never have to think about it again. Our technology syncs with ADP, Rippling and all the leading payroll providers. Additionally, we offer True360 Integration for small-business owners who use smaller payroll platforms, and we provide the same great service for them.

Employers Can Save on Their Personal Taxes

Once you enroll with a 401(k) plan provider, you will be able to make contributions to your own personal 401(k) account as well. Even if you have an IRA, a 401(k) offers benefits you can’t get with an individual retirement account, not the least of which is the ability to contribute much more each year. Additionally, if you’re over 50, you can make catchup contributions so you can feather your nest a little more thickly as you glide toward retirement.

As the business owner, you have the ability to make the call about whether you offer a traditional 401(k), a Roth 401(k) or both (or a SEP or SIMPLE IRA), and you can choose the one(s) that suits your personal situation best. Prefer to make pre-tax contributions? Choose traditional. Want to pay your taxes now? Then a Roth is for you.

With a traditional 401(k), employers usually have to be careful about how much they are contributing to their personal 401(k) accounts in relation to how much their employees are contributing. The IRS has rules (surprise!) about the ratios in order to prevent employers and highly compensated employees from contributing large amounts to their personal accounts if no company matches are being made to other workers’ accounts. Some employers can get around this issue by sponsoring a Safe Harbor 401(k) instead. With this type of plan, businesses don’t have to submit to yearly government testing and audits to ensure fairness and equity, but they are required to make matching contributions to employee accounts.

Saving Tax Money on Employer Contributions

Not only can you save tax money on your own personal 401(k) account, but your matching contributions to employee accounts are tax-deductible as well. Although there is a limit to the total matching funds you can contribute and deduct on your taxes, some of the excess may be carried over to the next year.

Many small-business owners are thrilled to learn about these benefits, because they just lengthen the list of reasons to offer employees a 401(k) plan. You know that as your company grows and becomes more profitable, one of the best ways to secure and retain top talent is by offering better benefits than the next guy, and that includes a 401(k) plan, whether you make matching contributions or not.

If you’re on the fence about matching because you aren’t sure you can afford it, consider the tax deduction we mentioned above, plus the savings you get if you go with a Safe Harbor plan, meaning you won’t have to pay an auditor to conduct the tests others are required to undergo.

Other options include a SEP (Simplified Employee Pension) and SIMPLE IRAs. With either option, your contributions to your employees’ accounts are tax-deductible as with other types of retirement savings vehicles, but with a SIMPLE IRA, you must contribute equally to employees’ accounts and yours — no one can get a different percentage. With a SEP, employers are not required to contribute to workers’ accounts and employees can’t contribute to their own accounts either, but with a SIMPLE IRA, they can.

These types of retirement savings plan have had some popularity with small-business owners looking to avoid the administrative hassles that accompany opening and managing a 401(k), but 401GO has made many of these concerns moot. You can now become a sponsor for your company’s 401(k) plan in 15 minutes and never do another page of paperwork again (unless you want to make changes).

If you need some time to mull these options over or to consult with your financial advisor, give yourself a deadline for doing so — don’t put off this important move that will make such a difference in your life and the lives of your employees.

The post How a 401(k) Helps with Payroll Taxes appeared first on Fast and Affordable 401k for growing businesses.

The Costs of Doing Business

When you first opened your business, you may have had to do without a lot of things you wish you could have had. These may have included better or larger quarters, the ability to offer more or better goods or services, and more employees to spread out the workload.

Let’s imagine you have an accounting firm. Maybe you passed your CPA exam and joined a large, busy firm where you worked long hours for little pay — helping rich people get richer. Perhaps you longed for a bigger slice of the pie, so after you got a few years of experience under your belt, you struck out on your own. Your business may have been just you, working in your garage with your mom’s help answering the phone. But after a period of time during which your clientele grew through word of mouth about your top-notch services, you were able to hire a full-time administrative assistant and some junior-level accountants.

At that point, offering benefits like health insurance and a 401(k) plan may still have been a dream to you. Your priorities at the time likely included a clean, nicely furnished and well-kept office, because it’s important to make a good impression on your clients. Additionally, you probably interviewed your employees carefully, choosing only the ones who were the most capable and worked well with your clients. You had to decide how much compensation to offer your employees. Too much, and it eats into your bottom line; too little, and they’ll leave to work for a competitor.

It’s the same process when you’re deciding what other benefits to provide. If other accounting firms offer 401(k)s and PTO and you don’t, you won’t get the best employees. You’ll get the leftovers.

Who Offers Matching 401(k) Contributions?

According to a study done by Plan Sponsor Council of America, a nonprofit trade association that supports employers that offer retirement plans, 98% of employers who sponsor 401(k) plans offer some type of matching contributions. The average matching contribution percentage is 100% up to between 4% and 6%, although some newbies may start at 50%. 

You may think you can’t afford that, but if you think about it, you really can’t afford not to offer it. Why?

1.       If 98% of businesses offer 401(k) matching contributions and you don’t, this will make you look stingy at best and financially unsound at worst. Potential employees may worry that a business that can’t afford matching contributions may not be around much longer.

2.       Not only does offering a 401(k) program attract better talent to your small business, it also encourages your employees to remain loyal to your company. That’s because employer matches are usually tied to a vesting schedule, often between two and five years. If your employee leaves before they are fully vested, they lose some of the money that you contributed to their 401(k). So employer matches and a reasonable vestment schedule help to encourage employee retention.

3.       Another reason employers want to offer matching 401(k) funds is that these contributions are tax deductible. How much your business is eligible to deduct is based on a number of factors outlined by the IRS. You can’t help but feel good knowing that the IRS deems your matching contributions tax deductible — plus, you’ll improve your reputation in the community and save money at the same time.

4.       Down the road, you may want to consider that as the company’s owner, you and any highly compensated employees you have would not be able to save as much in their 401(k) as they could with matching contributions in place. And that’s not just because the matching funds would otherwise be absent — it’s due to federal rules regarding how much owners and highly compensated employees are allowed to contribute in relation to other employees. Offering matching contributions up to a certain percentage provides an incentive for employees to save more — so you can save more too.

The good part about deciding to offer matching contributions to your employees’ 401(k) accounts is that you can start small and grow with your business. Maybe at first, you will opt to match 50% up to 3%. As your company gains more financial flexibility, you may be able to offer 100% up to 6%. Don’t make the mistake of thinking workers and competitors will not know which company offers what — topics like this are always popular for discussion, and not just at happy hour after work, but on social media as well.

For more information on how easy it is to start and manage a 401(k) plan at your company, contact 401GO today.

The post 4 Reasons You Should Offer Matching 401(k) Contributions appeared first on Fast and Affordable 401k for growing businesses.

Gen Z doesn’t seem to mind how much they make. Almost half of the super savers make $35k or less. The movement is more about lifestyle and habits. Workers are learning to value living on less and not overburdening themselves financially, so they can prioritize their futures.

You can encourage super saving

Workplace retirement plans are often the first introduction employees have to investing. It’s where they get their feet wet, and where they learn how investing works and how to understand the lingo. In fact, about half of Gen Z workers report that they started saving for retirement with their first job.

Which means that employers have a huge opportunity to encourage workers to become savers, even super savers, by offering a good 401(k) plan and helping them begin using it.

If your business could benefit from the addition of Gen Z employees, you might consider tailoring your plan to meet their needs. Even small businesses can offer really excellent benefits, allowing them to compete with larger companies for top talent. Before going after these big (but young) fish, try these plan design updates.

Update 1: Start or increase an employer match

It’s true that matching funds are an expense, but keep in mind that it is one of the less expensive ways to compensate employees. Since retirement benefit expenses are tax deductible, and not subject to payroll taxes, the effect on your bottom line can be substantially less than you may anticipate.

And, since an employer match helps workers maximize their retirement savings, many will prefer increased benefits to a raise.

Update 2: Provide immediate eligibility and vesting

Allowing new employees to take advantage of benefits on day one shows that you have faith in them—and in your own ability to give them a good career experience.

Many of your competitors will offer 1-year eligibility requirements, and 3-4 year vesting schedules. Design your 401(k) plan to offer immediate eligibility (or 90 days if you’re worried), as well as immediate vesting, and your company will look a lot more attractive to prospective employees.

Update 3: Use automatic plan design features

Automatic enrollment assumes every employee will participate in the plan, but allows them to opt out if they don’t want to use it. Automatic increases will adjust the amount participants contribute, usually by 1% per year up to a predetermined maximum. 

Many employees will appreciate how successful their savings can be while they are completely hands-off. And some will choose to remain in a plan that they are already enrolled in because it’s the easy path. 

These small design features can nudge workers into a path of excellent retirement saving.

Update 4: Offer financial wellness tools and education

Employees are increasingly asking for financial education and investment advice, and looking to employers to provide it. And those who are serious about retirement planning—the super savers—will appreciate it even more.

A few 401(k) providers offer financial education and tools. Ask what perks are available before you purchase a plan.

Update 5: Offer a larger selection of investment options

401GO offers an investment lineup that is more robust than many of our competitors. With share classes from different providers and three sets of target date funds, employees are sure to find investments that suit them.

And, with our custom portfolio builder, participants can get investment suggestions based on their risk tolerance and time to retirement, so they won’t be alone in their decision-making process.

Advice for super savers

If you have super savers—or prospective super savers—on your team, you can help them by offering these pro tips.

1. Max out your 401(k). The contribution limit for 2023 is $22,500. If you can afford to, try to reach that maximum limit.
2. Use multiple investment vehicles. A 401(k) is an excellent way to save for retirement, but super savers might pair that with an IRA, HSA or regular stock investing account.
3. Watch fees like a hawk. Never overpay for investments. Make sure you watch your fees and if they get high, swap that investment for a similar lower-priced alternative.
4. Hire a financial advisor. Advisors can improve outcomes by 15% or more over time, so it’s worth having one on your side. Just make sure you do your homework, and only hire the best.

The best retirement plan for small companies

Maybe we’re biased, but we think the 401GO platform is the best solution for small businesses. With a robust investment lineup, a custom portfolio builder, very competitive pricing, and automated management, there is no provider better equipped to make your company attractive to Gen Z employees.

The post 5 Updates to Make Your 401(k) Attractive to Gen Z Workers in 2023 appeared first on Fast and Affordable 401k for growing businesses.