401k plans for small Business

401(k) Plans For Small Businesses. To order copies call 1-866-444-3272.

Why 401(k) Plans?

401(k) plans can be a powerful tool in promoting financial security in retirement. They are a valuable option for businesses considering a retirement plan, providing benefits to employees and their employers.

Employers start a 401(k) plan for a host of reasons:

  • A well-designed 401(k) plan can help attract and keep talented employees.
  • It allows participants to decide how much to contribute to their accounts.
  • Employers are entitled to a tax deduction for contributions to employees accounts.
  • A 401(k) plan benefits a mix of rank-and-file employees and owners/managers.
  • The money contributed may grow through investments in stocks, bonds, mutual funds, money market funds, savings accounts, and other investment vehicles.
  • Contributions and earnings generally are not taxed by the Federal Government or by most State governments until they are distributed.
  • A 401(k) plan may allow participants to take their benefits with them when they leave the company, easing administrative responsibilities.

This booklet highlights some of a 401(k) plans advantages, some of your options and responsibilities as an employer operating a 401(k) plan, and the differences among the types of 401(k) plans. For more information, a list of resources for you and for 401(k) plan participants is included at the end of this booklet.

Establishing A 401(k) Plan

When you establish a 401(k) plan, you must take certain basic actions. One of your first decisions will be whether to set up the plan yourself or to consult a professional or financial institution – such as a bank, mutual fund provider, or insurance company – to help with establishing and maintaining the plan. In addition, there are four initial steps for setting up a 401(k) plan:

  • Adopt a written plan document,
  • Arrange a trust fund for the plans assets,
  • Develop a recordkeeping system, and
  • Provide plan information to employees eligible to participate.

Adopt a written plan document – Plans begin with a written document that serves as the foundation for day-to-day plan operations. If you have hired someone to help with your plan, that person likely will provide the document. If not, consider obtaining assistance from a financial institution or retirement plan professional. In either case, you will be bound by the terms of the plan document.

Once you have decided on a 401(k) plan, you will need to choose the type of 401(k) plan that is best for you – a traditional 401(k) plan, a safe harbor 401(k) plan, or an automatic enrollment 401(k) plan. In all of these plans, participants can make contributions through salary deductions.

A traditional 401(k) plan offers the maximum flexibility among the three types of plans. Employers have discretion over whether to make contributions for all participants, to match employees deferrals, or to do both, or to do neither. These contributions can be subject to a vesting schedule (which provides that an employees right to employer contributions becomes nonforfeitable only after a period of time). Annual testing ensures that benefits for rank-and-file employees are proportional to benefits for owners/managers.

There are several kinds of 401(k) plans that aren't subject to the annual contributions testing required with traditional 401(k) plans. These are known as safe harbor 401(k) plans and, in exchange for avoiding the annual testing, employees in these plans must receive a certain level of employer contributions. Under the most popular safe harbor 401(k) plan (discussed in this publication), mandatory employer contributions must be fully vested when made.


Wiley Beyond 401(k)s for Small Business Owners: A Practical Guide to Incentive, Deferred Compensation, and Retirement Plans
Book (Wiley)
2002-12-10 15:32:08 by Bluescreen

Retirement Plans for contracted employees

First position as a contracted employee of a company. I am unable to participate in the company 401k and I don't have a small business set up (which from what I understand eliminates Keogh Plans). As far as retirement, what plans or steps can I take that would allow me to invest cash either tax free or deferred to be put toward retirement? (aisde from IRAs)

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