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Small Business Owners Can Take the Benefit of 401(K) Plan

Apr 14th 2020 at 3:10 PM

A 401(k) plan is a retirement option sponsored by an employer. It is a tax-advantaged, contribution retirement account offered by employers to their employees. The employers can match some or all of the contributions of their employees.

There are various 401(k) plans. These are:

• Traditional
• Safe harbor
• Solo

There is another option called a Roth 401(k), in which the funds contributed are taken out after taking the taxes out of the employee’s wages.

Why Have a 401(k) Plan

Small business owners can set up a 401(k) plan though you may have to pay some fees for establishing the plan. The fees would actually be a good investment as a 401k for small business owners can help to attract and retain employees. Certain steps have to be followed to set up a 401(k) plan. These would include:

• Deciding on who is establishing and maintaining the plan.
• Arranging a trust for the plan’s assets.
• Creating a written plan document
• Coming up with a recordkeeping system
• Distributing plan information to eligible employees

Take the advice of 401(k) Providers

A 401(k) plan was not very popular with small business owners as they considered it to be complicated to establish and costly to administer. However several management companies have come to the forefront to make things easier. Some of the best 401k providers for small business help to make the task easier. They provide plans which help small business owners.

It is wise to take the service of the providers since:

• costs have dropped dramatically because there are several providers to choose from
• You get the benefit of added services like plan administration and payroll common.

There are Administrators to Help You

Once your business is running and the 401(k) plan is set up a lot of hard work is required to maintain it. This would include:

• Consultation on initial plan design
• Preparation of Summary Plan Description for participants and beneficiaries
• Approval of transactions
• Monitoring employee contributions, distributions and withdrawals compliance with plan rules and federal regulations
• Day-to-day employee communication
• Handling employee “status” changes.

None of this is easy and it is ideal to get a 401k plan administrator to handle all this. The role of an administrator varies according to the service agreement you have made but having one will always benefit you.

If you are planning to start a small business and give your employees all the benefits you should look into a 401(k) plan.

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