You’re no longer a novice, and your company is thriving.
Now it's time to consider establishing a 401(k) retirement plan.
Don’t be scared off. You’re not an expert in 401(K)-speak, nor should you be. With a little due diligence, you can conquer this world, too!. A 401(k) offers an efficient and accessible way for you and your employees to save for retirement while taking advantage of massive tax incentives that just aren’t available to W2 employees.
Write Out Your Goals
It's essential to write out what you want your retirement plan to achieve. Are you looking to use it as a tool for employee recruitment and retention? Is your primary focus on maximizing your personal retirement savings? Or, perhaps, you aim to leverage additional tax incentives for your business? Your goals will guide your decision-making process.
Consider Employer Contributions
A crucial component to consider is whether you plan to contribute to your employee accounts. It’s a double-edged sword: it’s your money you’re thinking of parting with, yet at the same time, free money is powerful benefit and retention tool… One popular plan to consider is a SEP IRA, which relies solely on employer contributions, with no employee contributions allowed. Meanwhile, a Simple IRA requires employer contributions but also allows employee contributions
How much do you want to save?
401(k)s allow for some of the highest salary deferral amounts (up to $66,000 in 2023!), making them suitable for those aiming to maximize savings. Plans like the Simple IRA have lower contribution levels that may not meet your savings needs.
Fiduciary Responsibility
This one’s massively important! As an employer, you take on fiduciary responsibilities as you make financial decisions that impact others. For example, in a traditional 401(k), you'll collaborate with a plan advisor to create a fund lineup for employees to choose from, a critical fiduciary responsibility. It's extremely important to recognize the significance of fiduciary duties.
Complexity vs. Cost
The level of complexity and cost should also be factored in. Traditional 401(k) plans offer maximum flexibility in plan design. You can customize eligibility periods, vesting schedules, loans, and more to suit your organization's needs within federal regulations. However, increased flexibility often comes with higher implementation and administration costs. Finding the right balance between flexibility and cost is essential.
Professional Support
Engaging the right professionals to support you is crucial. Start by consulting a CERTIFIED FINANCIAL PLANNER™ (CFP®) professional who specializes in helping businesses establish employer-sponsored retirement plans. A CFP® professional can deftly guide you through all the considerations discussed above.
Setting up a retirement plan for your business is not a light undertaking, but it’s one of the preeminent tax and savings benefits made available to business owners that just don’t exist for W2 employees. Start with a CFP® Professional and start taking advantage!!