[This guest post was written by web content producer Erin Steiner.]
Offering a 401(k) to your employees (or to yourself if you are an entity of one) is definitely in your best interest as a business owner. There are lots of benefits associated with 401(k)s—especially for businesses with fewer than fifty employees.
Still, deciding not just if but when the plan should be offered is a challenge. Here are a few things to consider.
Can You Handle the Costs?
There are a variety of fees involved in the setting up of a plan. While sometimes it is possible to have them waived (these favor small business owners like yourself), don’t count on that being the case for you. Fees can add up and vary wildly. Setting up each account costs money. The more people involved in the company’s plan, the more expensive it is going to be to set up and to maintain (as employees come in to the company and leave the company). In addition to your own contributions to the plan’s maintenance, some plans will require that each person who takes part in the plan pay a service fee.
Hiring someone to help you set up your company’s 401(k) plan (which is definitely in your best interest if you are not a financial planner yourself) comes with its own set of costs. Click here to find out the best way to choose a 401(k) plan.
Do You Want to Seem More Credible?
If you’re trying to attract good and loyal employees, a 401(k) can help you do that. A 401(k) is still seen as a major perk, and you can use that to attract people who are going to work hard and stick around to help you build your business. Businesses that offer benefits packages and retirement plans are automatically seen as more legitimate than those that don’t.
Do You Want to Increase Company Loyalty and Reduce Turnover?
Do you have a business that, for lack of better term, “breeds” loyalty? Is it a fairly stable business that will challenge your employees each day, keep them interested in their work, and cause them to feel rewarded by it?
Alternatively, do you have a lot of employee turnover? This isn’t a judgment on your company. Some types of businesses just lend themselves to a higher rate of turnover than others. Retail and food service companies, for example, have a higher turnover rate than, say, companies in the communications or legal sectors.
Either way, 401(k)s can provide incentive and rewards for loyalty.
If you do have to deal with a higher rate of turnover, it’s in your best interest to wait to provide benefits to new employees. This is why most small business owners will require an employee to spend at least six months with the company before benefits and retirement planning are offered to him.
Do You Need a Break on Your Taxes?
401(k)s offer you a great and legal tax shelter in that money contributed to your account is contributed pre-taxation. There are also tax incentives for setting up an account for your employees—your business can qualify for up to $1500 in tax credits (over a few years) by setting up the account.
If you set up an employer-match program (where you match the amount of money your employees put in to their 401(k)s), the money you match is tax deductible.
When the answer to all of these questions is yes, you’ll know that it’s time to talk to your financial planner about setting up a 401(k) plan for your business.
Erin Steiner is a web content producer from Portland who, in spite of an insatiable curiosity for most subjects, writes primarily about small business, personal finance, and what it’s like to live on the internet.