How to Set Up a Small Business 401(k) Plan

If you have a small business, setting up a 401(k) plan is a smart thing to do, not only for yourself, but also for your employees. While trying to get started with your 401(k) selection process may seem daunting, we’re here to help guide you along the way. From the “whys” to the “how-tos”, our guide to setting up a small business 401(k) has you covered.

Why offer a 401(k) plan?

Some business owners may feel that trying to set up a company 401(k) isn’t worth the trouble or costs. In truth, there are numerous benefits to offering your employees a 401(k) option:

• Plan expenses and employer contribution options are tax deductible
• Under the SECURE Act, your business may be eligible to receive tax credits for offering a 401(k)
• Plan providers and payroll integration options make providing 401(k) plans easier than ever
• You can attract and retain new employees
• Your employees can save for retirement with pre-tax or after tax dollars

How to set up a small business 401(k) plan for your employees

You’ve decided to take the plunge and set up a plan for your employees. The following are the detailed steps you’ll need to follow to choose and set up your plan.

Remember, each plan is different. The retirement sales experts at ePlan Services are here to help you choose the right plan for you and get started.

Choose the right plan

It all begins with choosing the appropriate plan for your business and employees. You’ll have several options to choose from including:

• Traditional 401(k) – This option allows employees to contribute to their retirement account using pre-tax dollars. When employees withdraw their money from this account, ideally at the time of retirement, they’ll pay income taxes on the amount.
• Safe Harbor 401(k) – This plan allows you to skip compliance testing requirements. To qualify, you must contribute to your employee’s accounts.
• Solo 401(k) – This is only for an owner-only business. Your spouse can also qualify. With all the perks of a traditional 401(k), a solo 401(k) plan doesn’t require compliance testing and additional fiduciary responsibilities.
• SIMPLE 401(k) – Designed for 100 or fewer employees. The employer must also contribute to employee accounts with this option. The deferral contribution amounts are lower than a 401(k), but no compliance testing is required.Most 401(k) plans include a Roth option, in which employees contribute to their accounts using post-tax dollars.

Choose a 401(k) provider

Hiring a 401(k) provider to administer your plan will help to take the guesswork out of your plan setup. Plus, a skilled team of professionals, such as ePlan Services, will help to keep your plan compliant.

Some providers also easily integrate with your payroll system, allowing for a more streamlined payroll process and eliminating the burden of managing the plan manually.

Establish a plan document

The IRS requires you to establish a plan document for your chosen plan. This is a comprehensive document that details the plan operation and administration, including key aspects of your plan, such as how much the employer will contribute to the account and whom employees should contact with their questions. If you’ve made the choice to hire a plan provider, they will typically handle this for you so you can focus on running your small business.

Plan for compliance testing and Form 5500

Companies that offer their employees a 401(k) plan are required to file the Form 5500 and may be subject to compliance testing, depending on the plan that was chosen. Knowing your compliance responsibilities in advance can save time. However, your plan provider can also help you prepare for compliance testing.

Set up a trust

The IRS requires that all funds and employee contributions are kept in a trust. Along with establishing a trust, you’ll need to appoint a trustee to manage it. You can choose a trustee within your own company or outsource them.

Inform your plan participants

The final step in setting up a 401(k) plan is letting your employees know about the new retirement benefit. There are required employee notices depending on the plan provisions, but additionally, you can do this with a company newsletter, a detailed email, or an onboarding meeting. A mixture of all of these options is also a great way to keep your employees engaged in the process and give them a chance to ask questions and provide feedback.

We understand that there are many factors to consider when considering the right 401(k) plan for your small but mighty business. We’d be glad to help make the process easier for you. If you’ve chosen your perfect plan and you’re ready to get started, contact the ePlan Services sales team today. We’ll get your account set up quickly and easily.

This content is for educational purposes only, is not intended to provide specific legal or financial advice, and should not be used as a substitute for the legal advice of a qualified attorney or financial professional. The information may not reflect the most current legal developments, may be changed without notice and is not guaranteed to be complete, correct, or up-to-date.