How to Pick the Best Small Business 401(k) Plan Provider

Look at the options available and research thoroughly before choosing a retirement plan for employees.

The Best Small Business 401(k) Plan Providers

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Some 401(k) plan providers cater to smaller companies, such as a startup or those with fewer than 50 employees, while others are set up for medium-sized or large businesses.

To attract and keep talented employees, it can be a smart move to add a 401(k) plan to your small business. As a result of the SECURE Act , which was passed in 2019, there are now more opportunities for small employers to offer retirement plans. The law allows small businesses to participate in pooled employer plans, making it easier and less costly for small employers to provide workers with a retirement plan. Here's how to select the right 401(k) plan provider for your small business.

Find the Best 401(k) Providers for Small Business

Since there are many providers to choose from, keep in mind that not all will offer the same services or prices. Some 401(k) plan providers cater to smaller companies, such as a startup or those with fewer than 50 employees, while others are set up for medium-sized or large businesses.

These providers specialize in 401(k) plans for small businesses:

  • American Funds. Small businesses of any size, from startups to those that have recently merged, can find traditional and Roth options through this provider.
  • Betterment. Through its online cost calculator, small business owners can enter their number of employees and plan preferences to gain a personalized estimate of 401(k) costs.
  • Charles Schwab. Charles Schwab provides 401(k) plans for companies of any size and creates customized plans to fit a business’ specific needs.
  • Employee Fiduciary. With 401(k) plan establishment fees that start at $500, Employee Fiduciary provides personalized service from setup through plan administration.
  • Fidelity Investments. Fidelity has small business 401(k) plans available for businesses with more than 20 employees and an app that employees can use to monitor their accounts.

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

To offer a 401(k) plan for employees, the IRS lays out four steps to get started. These include:

  • Adopt a written plan. If you have assistance from a professional or a financial institution, this step will usually be provided for you.
  • Arrange a trust for the assets. A plan’s assets need to be in a trust to make sure they are used only for the participants and their beneficiaries.
  • Develop a recordkeeping system. If you work with a financial institution, you can generally expect to have help with keeping the necessary records.
  • Communicate information to employees. This includes sharing details about the plan with workers who are eligible to participate.

You will also have to decide on the type of 401(k) plan to offer employees. This could be a traditional 401(k) plan, a safe harbor 401(k) plan or an automatic enrollment plan. With a traditional 401(k) plan, the employer can elect to make contributions for all plan participants or offer a 401(k) match , but is not required to contribute. A safe harbor 401(k) plan requires the employer to make annual contributions on behalf of employees. An automatic enrollment 401(k) plan permits the company to automatically sign employees up for the plan and place salary deductions in certain investments.

Consider Whether to Match Employee 401(k) Contributions

Many employees rely on a 401(k) plan to help fund their retirement. “In our experience, a company’s contribution to the plan has become a key recruitment and retention tool of high-performing leaders,” says Eric Shisler, vice president and director of research and retirement plan services at Budros, Ruhlin & Roe in Columbus, Ohio. You might offer a match which consists of a percentage of an employee’s contribution, up to a specified percentage of the employee’s salary. Or you could provide a match up to a certain dollar amount.

Another type of employer contribution is 401(k) profit sharing, which allows a business to set aside a portion of its pre-tax profits in employee retirement accounts. You may choose to contribute a certain dollar amount, or a percentage of each employee’s salary. Before committing to contributions, you’ll want to think about short- and long-term profit projections. “Another key consideration for business owners when setting up a plan is if the company can sustain their contribution if cash flow fluctuates,” Shisler says.

Look at Small Business 401(k) Costs

Providing 401(k) accounts to employees will come with fees , and you should carefully sort through the fine print before selecting a 401(k) plan. A small business 401(k) plan might charge recordkeeping fees, investment fees and transaction fees.

Keep in mind that fees might change if the company hires more workers. “Look to understand how the fees quoted may change as the plan grows,” Shisler says. “Plans with the cheapest pricing upfront are not always the cheapest plans over time, especially with well-funded plans.”

Consider the Small Business 401(k) Investment Options

Look for a 401(k) plan that provides an assortment of investment options , rather than just a few ways to invest. “One of the major things that you want to look for in a plan for small companies is what kind of lineup of investment options will be available to the employees,” says Mike Scarborough, president and CEO of Oak Wealth Partners in Lexington Park, Maryland. “It should be broad-based in the sense that it should have large and small stocks, various types of bonds, some international exposure that is very broad-based, as well as emerging markets."

Carefully Select a Small Business 401(k) Provider

You’ll typically want to involve experts in the financial industry to help oversee the 401(k) plan. "Many individuals in the financial services industry can sell you a plan, but usually there are certain advisors who specialize in working with 401(k)s," says Art Haws, CEO and managing partner and HawsGoodwin Wealth in Franklin, Tennessee. "They can help you navigate the many issues and decisions made when starting and maintaining a plan."

A trustee will manage the 401(k) plan assets, and carries the responsibility of making decisions according to the plan's terms. A 401(k) custodian does not make management decisions, but holds plan assets.

When researching options, ask about the third party administration setup. "Some plans bundle the TPA services like plan design and documents, testing and tax preparation, while others require you to work with an outside TPA," Haws says. "An experienced financial advisor can help explain the benefits of either, and recommend the best solution for your specific situation." Some financial professionals will help you communicate about the retirement plan to employees. Also ask about payroll integration, as a 401(k) provider with payroll-related services might make your 401(k) plan easier to manage.

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Who is the plan for?

SE 401(k) : Self-employed individual or business owner with no employees other than a spouse.

SEP IRA : Self-employed individual or small business owner, primarily those with only a few employees. 1

Fidelity Advantage 401(k) : Small and medium- sized businesses looking to offer a 401(k) for the first time.

SIMPLE IRA : Self-employed individuals or businesses with 100 or fewer employees.

How do contributions work?

SE 401(k) : Employers may contribute up to 25% of compensation, up to a maximum of $69,000 in 2024 ($76,500 if age 50 or older).⁵ Employees may contribute up to $23,000 for 2024 ($30,500 if age 50 or older).⁵

SEP IRA : Employers may contribute between 0% and 25% of compensation up to a maximum of $69,000 for 2024.⁵ Each eligible employee must receive the same percentage.

Fidelity Advantage 401(k) : Employers make matching contributions, up to 4% of the annual gross compensation of all employees.⁴ Employees may contribute up to $23,000 for 2024 (catch up contributions available).⁵

SIMPLE IRA : Employers contribute either a matching contribution of 1, 2, or 3% or a non-elective contribution of 2%. 7 Participants may contribute up to 100% of compensation with a maximum of $16,000 for 2024 ($19,500 if age 50 or older). 8

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SE 401(k) : As someone who's self-employed, you can contribute as both employer and employee.

SEP IRA : Only the employer can contribute.

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SIMPLE IRA : There are no account fees and no minimum to open an account, $0 commission for online US stocks and ETF trades.⁶

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SE 401(k) : You can take a withdrawal once you’ve had a triggering event, such as disability, plan termination, turning age 59 ½ or older, and a few others. However, some withdrawals may incur a 10% penalty. 4

SEP IRA : You can withdraw at any time, but a 10% penalty may apply if you're not yet age 59½. 4

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Table of Contents

How to choose a 401(k) provider

7 best 401(k) providers for small businesses.

Regardless of your business’s size, offering your employees a retirement savings plan is a crucial part of any HR operation. The key is to choose a 401(k) provider that is specially equipped to provide small businesses with quality retirement plans, investment advisory services and administrative support.

There are a few retirement plans available for self-employed and small businesses, including SEP-IRA, SIMPLE IRA and individual 401(k) plans, but traditional 401(k) plans are by far the most common option. Traditional 401(k) plans allow participants to make pre-tax contributions to an individual retirement account up to the limit set by the IRS. Employers can also choose to make contributions on behalf of their employees, match their employees’ contributions or both, also up to the IRS limit.

In this guide, we’ll go over seven of the best 401(k) providers for small businesses and walk you through how to go about choosing the best 401(k) provider for you and your employees.

» MORE : NerdWallet's best HR software for small businesses

You’ll first need to choose the firm that provides the type of retirement plan you really want to offer, whether that’s a traditional 401(k) plan or something else. Also take a look at the plan design to ensure that their eligibility requirements, vesting schedule, investment options and other details are appropriate for your employees. You’ll also need to evaluate the fees attached to your retirement plan. Often, fees vary depending on your business and the number of employees, so you will need to get in touch with each provider directly to receive a quote.

On a qualitative level, you’ll likely want to work with a 401(k) provider with excellent customer service, individualized investment and plan design guidance and a support team that’s easy to reach — especially because the landscape of retirement plans can be confusing to navigate, both for you and your employees.

Moreover, you should consider a provider that acts as a fiduciary advisor. Fiduciaries are legally and ethically bound to provide unbiased investment advice that aligns with their clients’ best interests. They also manage, monitor and adjust their clients’ retirement plans. There are several types of fiduciaries, but you’ll most often see the term 3(38) fiduciary.

Also note that a couple of the 401(k) providers in this round-up are online-based, which is a great option if you’re looking to really streamline and digitize this process. Certain providers can offer employer benefits beyond 401(k) plans, as well, which is a good option if you want to integrate all your fringe benefits under one provider.

Here are seven of the best and most reputable 401(k) providers for small businesses that you should consider in 2022.

ADP is one of the most respected names in payroll processing, but their comprehensive HR and employer services suite includes retirement plans and administration. While they can serve businesses of all sizes, ADP is unique in that they extend their full arsenal of services and decades’ worth of expertise to small businesses (which they define as businesses with one to 49 employees), in addition to large enterprises.

If you sign up for ADP’s retirement planning service, you’ll have access to a team of professionals who can help you browse, choose and customize which of their available retirement plans is best for you and your employees. In addition to 401(k) plans, ADP offers SIMPLE and SEP IRA options, which are great choices for very small businesses. They also offer tiered investment options, which are suitable for investors with all experience levels.

Once they’ve helped you design a retirement plan, your ADP advisors will help you implement and manage your plan to ensure you’re staying compliant. If you’re an ADP payroll client, your retirement plan’s record-keeping system will automatically integrate with your payroll system.

2. Betterment for Business

Betterment for Business is the 401(k) channel of Betterment, a robo-advisor that helps consumers make smarter investment choices using a combination of technology and human expertise. With this service, Betterment for Business’ human advisors and technology help business owners design 401(k) plans and advise employees on the smartest investments they can make in a variety of ETFs to optimize their retirement savings. Betterment for Business is a certified 3(38) fiduciary, so they’re legally and ethically required to act in your company’s best interests when giving investment advice.

Obviously, Betterment for Business is only a viable option if you and your employees are comfortable using a robo-advisor and managing your plan digitally. If you are interested, we’d recommend taking a look at our Betterment for Business review for a more in-depth understanding of this unique 401(k) provider.

3. Charles Schwab

Charles Schwab is one of the most established and best-known investment and retirement firms in the country — a better option if you consider yourself a bit too much of a technophobe to opt for a robo-advisor. Charles Schwab offers a managed account service that offers your employees personalized advice on a range of investment options, including ETFs or index mutual funds.

They’ll also provide ongoing account monitoring and automatic adjustments. As an alternative, Charles Schwab also offers SIMPLE and SEP IRA plans; or, if you’re self-employed, you can opt for their Individual 401(k) plan, which is essentially a traditional 401(k) plan designed particularly for individually owned businesses. It’s worth noting that this plan has no setup or monthly maintenance fees.

4. ShareBuilder 401k

Sharebuilder 401k allows self-employed individuals and small businesses to buy and set up low-cost 401(k) plans completely online. They also act as 3(38) fiduciaries, so they’re certified to make investment advice, manage portfolios, and handle plan administration.

With Sharebuilder 401k, you’ll have four retirement plan options: Solo 401(k), Safe Harbor 401(k), Traditional 401(k) and Tiered Profit-Sharing 401(k). All plans require a one-time setup fee, a flat monthly administration fee and an annual fund fee that varies from 0.04% to 0.39% per year. Investment options include index ETFs and five types of model portfolios based on the individual investor’s risk tolerance.

5. Fidelity Investments

Another trusted name in retirement services, Fidelity has over 30 years of experience and currently over 30 million plan participants under their belt. Fidelity can service businesses of all sizes, but they say that 86% of their business clients have fewer than 500 employees — so despite the big name, they’re fully equipped to serve small businesses.

Fidelity’s 401(k) plan offers a wide range of investment options, including over 16,000 mutual funds from 380 fund companies. They also offer comprehensive advisory services, as well as administrative, reporting and compliance support, and you can reach their advisors either in person, online or over the phone. Their advisors will help you design a plan or you can choose to work with your current broker. Plus, Fidelity has an app and online dashboard where you and your employees can view and manage their plans and get in touch with advisors whenever they need. Beyond retirement plans, Fidelity also offers integrated employer benefits, including payroll and health plans.

6. T. Rowe Price

At 83 years old, T. Rowe Price is the most established asset management firm on this list. They offer four retirement plans for small businesses: SEP-IRA, SIMPLE IRA, Individual 401(k) and a 401(k) for Small Business. The former three plans are best for self-employed individuals or businesses with under 100 employees, while the latter plan is best suited for businesses with up to 1,000 employees.

Under the 401(k) for Small Business, plan sponsors can choose from over 100 no-load mutual funds and over 5,400 non-proprietary funds. T. Rowe Price also offers plan participants 24/7 phone support, plus an online portal where they can manage their plans and conduct transactions.

7. Merrill Edge

Under the Merrill Small Business 401(k) plan, independent advisors select and manage funds and model portfolios for all participants. Unlike the other participants on this list, pricing for this plan is very transparent: It costs a one-time setup fee of $390 and a monthly administration fee of $90. Then, each participant is responsible for a $4 monthly recordkeeping fee and an annual asset-based fee of 0.52%. You also have the option of converting your existing 401(k) plan to a Merrill Small Business 401(k), in which case you may end up saving money.

Merrill Edge’s Merril Small Business 401(k) is suitable for corporations, partnerships and nonprofits, but they also offer SEP-IRA, SIMPLE IRA and Individual 401(k) plans for sole proprietorships and self-employed individuals.

» MORE: NerdWallet's best small-business apps

This article originally appeared on Fundera, a subsidiary of NerdWallet.

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A small business 401(k) is a streamlined and affordable retirement plan designed with small business owners and their employees in mind., small business 401(k) features, to learn more about how a small business 401(k) can benefit you and your business, select any of the links below., discover affordable and straightforward pricing, pricing for your business footnote  6, pricing for individuals with a balance footnote  7, what's a key difference between a small business 401(k) and a simple ira, get started with a small business 401(k) in 3 easy steps, answer a few questions, review your proposal, purchase your plan, explore all plans available for small business, frequently asked questions, what types of businesses can set up a small business 401(k), what are the potential tax benefits of a 401(k), how much can employers contribute annually, how much can employees contribute annually, does my business have to contribute to employee accounts, what is a safe harbor plan, how much does it cost to set up and administer a small business 401(k) for my company, what is the difference between roth and traditional 401(k) contributions.

  • The basic difference between Roth and traditional 401(k) contributions is when taxes are paid out. For Roth contributions, federal taxes are due in the same year you contribute. When you take a qualified withdrawal from your 401(k), earnings gained on top of the Roth contributions you made will be tax free. A qualified withdrawal for Roth contributions is one that is made at least five years after the year of your first designated Roth contribution (counting the first year as part of the five) and is made on or after attainment of age 59½, disability, or death. IRS Retirement topics, Designated Roth Account  popup State income tax laws vary, and we recommend consulting with a tax professional to determine how your state treats Roth distributions from qualified plans (which include 401(k) plans).
  • Traditional 401(k) contributions do not require taxes to be paid at the same time you contribute. For traditional 401(k) contributions, taxes on contributions and earnings are due when withdrawn. Consult with a tax professional to determine further requirements, if any, on your 401(k) withdrawal for traditional 401(k) contributions.

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Top 10 Small Business 401(k) Plan Providers

401k plan options for small businesses

Historically, small employers have steered clear of offering 401(k) plans , seeing them as complicated to establish and costly to administer. The rules for running a plan properly are admittedly complex. But increasingly, 401(k) management companies are helping to make the task easier by providing plans geared to the little guys of the business world.

If you are a small business owner considering initiating a 401(k) plan for your employees (and yourself), here are ten of the top retirement plan providers. They not only offer affordable plans but can act as administrators and investment fiduciaries—relieving you of the headache-inducing homework that comes with any plan.

Key Takeaways

  • Companies large and small that want to offer their employees 401(k) retirement plans have several options these days to easily and efficiently get one up and running.
  • With many providers to choose from, costs have dropped dramatically, along with added services like plan administration and payroll common.
  • Here we list ten of the top 401(k) plan providers that serve small businesses.

ADP's 401(k) plans offer investment options from more than 300 investment managers.   Three investment line-ups are available for participants, based on their familiarity with investing and financial assets.

In addition to retirement plans, ADP specializes in payroll , tax filing, HR , insurance and administrative services. ADP’s small business division (1 to 49 employees) provides integration of payroll and recordkeeping with 401(k) plans, an important benefit for small employers.  

Employees with existing 401(k) accounts have the option to transfer those plans into the new plan, and a mobile app lets employees check their retirement accounts from their smartphones and other devices.

With more than 360,000 retirement plans overall, American Funds provides 401(k) account options that can be tailored to any size company, including startups and those that have recently merged or made acquisitions.  

Their plans include both traditional and Roth versions.   Investment choices can be objective-focused (preservation, balance, and growth) or individual mutual funds. 

A newer player, Betterment for Business started offering its 401(k) plans to smaller businesses in 2016.  

As a robo-adviser , Betterment addresses many of the cost issues associated with the administration and management of a company 401(k) plan by using proprietary algorithms. In addition, Betterment says it eliminates fee hiding by using  exchange traded funds (ETFs). 

Schwab designed its Index Advantage 401(k) plan to “lower costs, simplify investing and help workers better prepare for retirement,” to quote the company literature.   The key is in the title: The plan uses index mutual funds or exchange traded funds (ETFs) with low operating expenses instead of actively managed mutual funds. Schwab claims operating expense savings by as much as 82%.  

Plans have no annual fees and participants get full access to all of Charles Schwab’s brokerage and banking services, including an interest-bearing, FDIC -insured savings account through Schwab Bank.

Automatic enrollment is available and employees can get help or use a self-directed brokerage account .

Edward Jones offers small employers a variety of options when it comes to investments in its 401(k) retirement plans.   They include stocks, bonds, mutual funds, and government securities .

The company offers education and administrative support to both business owners and employees. After the plan is established, employees can review their accounts online or through mobile apps made available by Edward Jones. 

Employee Fiduciary comes out of the gate offering to let business owners compare their current providers’ 401(k) fees to Employee Fiduciary fees. And indeed, Employee Fiduciary has very low fees. It costs just $500 to start a new plan or $1,000 to convert an old one.   Small employers pay $1,500 a year for up to 30 employees plus 0.08% of assets under management .

Employees have access to 377 mutual fund families (including Vanguard), all available ETFs and even a brokerage window through TD Ameritrade .  

Despite its low fees, Employee Fiduciary offers all the services of a full-price provider: tax return forms, annual report summaries, and benefit statements.

Fidelity Investments has consultants to help business owners select a plan and then, once the plan is established, provides access for employees and owners via the internet.   The company also offers a mobile app that allows employees to monitor their individual accounts.

Employees can transfer old retirement accounts into their new 401(k). Fidelity provides integration with payroll services, an advantage for small-business owners, as well as the full roster of services (plan administration, record-keeping, trading, and investment advisory).

Merrill Edge lists streamlining, convenience and affordability as key advantages to its small business 401(k) plan.   Also included are the usual benefits— tax deductions for the employer, investment fiduciary support, and educational support for employees.

With an annual asset-based fee of 0.52%, Merrill boasts pricing that is lower than many competitors.   Its plan includes online account management—a common feature in most 401(k) plans. An automatic enrollment option, as well as a Roth 401(k) option, are also available. Employers have the flexibility to contribute on a year-to-year basis.

ShareBuilder 401(k) has retirement plans specifically designed for small employers. There are four different 401(k) options—individual, simplified, customized, and tiered profit sharing.  

Each plan has distinct matching, vesting , and profit-sharing options and once the plans are established, employees are able to transfer existing retirement accounts into their new 401(k) account. In addition, ShareBuilder retirement plans integrate with the majority of payroll providers. 

Advertising its small business 401(k) plans as appropriate for companies with fewer than 1,000 employees, T. Rowe Price says it offers a “cost-effective structure” for both sponsors and participants.  

Investment options include a range of T. Rowe Price and non-T. Rowe Price investments. There is a plan sponsor resource center as well as 24/7 website access for participants. Sponsors may select from more than 100  no-load mutual funds  and common trusts as well as over 5,400 non-proprietary funds. 

Of course, nothing replaces due diligence and good old-fashioned homework when it comes to checking out various 401(k) plan providers. Make sure you ask enough questions and more important, the right questions when considering a 401(k) plan for yourself and your employees.

ADP. " ADP Advisor Access: Dedicated to Your Success ."

ADP. " Design a Better 401(k) Retirement Plan ."

Capital Group American Funds. " Employers & Plan Sponsors ."

Capital Group American Funds. " 401(k) Retirement Plans ."

Betterment. " Betterment for Business: The Best 401(k) for Employers and Employees ."

Charles Schwab. " Charles Schwab Launches Unique 401(k) Plan Solution Designed to Address Barriers to Retirement Saving and Investing ."

Charles Schwab. " A Unique View on the 401(k) ."

Edward Jones. " 401(k) Plans for Your Employees ."

Employee Fiduciary. " Employee Fiduciary 401(k) Fees are Low and 100% Transparent ."

Employee Fiduciary. " Low Cost 401(k) Investments ."

Fidelity Investments. " 401(k) for Small Businesses ."

Merrill Edge. " Small Business 401(k) ."

Merrill Edge. " How Does Your Plan Compare? "

ShareBuilder 401K. " Simple, Low-Cost Business 401(k) Plans ."

T. Rowe Price. " Small Business 401(k) ."

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401(k) for Small Business Owners: The Comprehensive Guide

Last Updated: October 13, 2023 | Read Time: 14 min

One-Minute Takeaway

  • A 401(k) plan offers employees a tax-advantaged way to save for retirement, often with employer matching contributions.
  • Small business owners can elect to self-administer or use a financial adviser to manage their 401(k) plan.
  • Self-administration involves a lot of record-keeping and compliance management.

As a small business owner, you have your hands full, juggling roles that range from daily operations manager to long-term strategy architect. But have you ever considered adding the role of “Retirement Benefits Planner” to your list? Offering a 401(k) plan not only provides your employees with a way to save for retirement but also helps you enhance your business’s competitiveness and employee retention. This comprehensive guide aims to unpack everything you need to know about administering a small business 401(k) plan.

What Is a Small Business 401(k) Plan and Why Should You Offer One?

A 401(k) is an employer-sponsored retirement savings plan that enables your employees to set aside a portion of their pre-tax earnings for retirement. You, as the employer, can match these contributions, boosting the size of your employees’ retirement savings.

  • Tax Benefits for Small Business Owners . Not only are the contributions you make to your employees’ accounts tax-deductible, but you may also be eligible for a tax credit for the costs to set up and administer the plan. New tax incentives have made it even more financially advantageous for small businesses to set up 401(k) plans.
  • Employee Retention and Competitive Compensation . In today’s competitive labor market, offering a robust 401(k) plan can set you apart, making your business a magnet for high-quality candidates. Studies have shown that retirement benefits are among the top considerations for job seekers.
  • Personal Savings for Business Owners . It’s easy to overlook your own retirement while handling the day-to-day challenges of running a business. A 401(k) plan enables you to invest in your future by making contributions that are tax-deferred until withdrawal, building your own nest egg.
  • Tax Benefits for Employees. Employees gain the ability to save for retirement in a tax-efficient manner. Pre-tax deductions reduce their current taxable income. An employer match serves as an additional financial incentive for employee participation. Offering a retirement plan can also improve financial wellness across the company, which is known to reduce stress and increase productivity.

Setting up a 401(k) for Small Business: Step-By-Step

Choosing the right 401(k) plan requires thorough analysis and expert guidance. A certified financial advisor can evaluate your business’s financial health, provide tailored advice, and help you navigate the complex landscape of 401(k) plans. In a nutshell, we’ll cover the main points you’ll need to consider if you want to self-manage your plan.

Determine Which 401(k) Plan You Want to Offer

Understanding the distinct types of 401(k) plans is crucial for selecting the one that’s the perfect fit for your business.

  • Traditional 401(k) : This option offers high contribution limits and flexible employer contributions but requires annual testing to ensure compliance.
  • Safe Harbor 401(k) : This is an excellent choice for small businesses looking for a plan that’s easier to manage in terms of compliance. Mandatory employer contributions may be a drawback for you, but it can help you attract and retain employees.
  • SIMPLE 401(k) : Specifically designed for small businesses with fewer than 100 employees, this plan type has lower contribution limits but also fewer administrative burdens.

Plan Administration

Administering a 401(k) plan involves several tasks, from ensuring compliance with federal regulations to educating employees about their investment options. Hiring a plan administrator instead of self-managing your plan is often an excellent investment.

  • Self-Administration:  If you opt to administer the plan yourself, you’ll be responsible for record-keeping, compliance with federal regulations, employee education, and ensuring timely contributions and distributions.
  • Outsourcing:  Contracting a specialized plan administrator can lift the burden of these duties, allowing you to focus on running your business.

Whether you self-administer or outsource, remember that you hold a fiduciary responsibility to act in the best interests of your employees by ensuring the plan’s effective management.

The Nuts and Bolts of Self-Administering a 401(k) Plan

If you opt to self-administer your small business 401(k) plan, the responsibility for compliance, record-keeping, and a slew of other administrative tasks falls squarely on your shoulders. This route can be cost-effective but also incredibly labor-intensive, with a range of compliance intricacies. Below is a deeper dive into what you need to know.

  • Record-Keeping. One of your key responsibilities as a self-administering employer is to maintain accurate records. This includes tracking employee contributions, employer matches, investment gains or losses, and distributions. Failure to maintain these records can result in severe penalties from the IRS and the Department of Labor (DOL).
  • Employee Notifications and Education. Federal law mandates that you furnish employees with certain disclosures:
  • Summary Plan Description (SPD):  This document outlines the benefits, rights, and obligations of participants in simple language.
  • Summary Annual Report (SAR):  A yearly financial summary of the 401(k) plan.
  • Individual Benefit Statements: Quarterly or annual statements that detail the individual employee’s account activity.

Additionally, consider organizing informational sessions to help employees understand the nuances of their 401(k) investment choices and how to make changes to their contributions.

  • Timely Contributions. The law stipulates that you must deposit employee contributions “as soon as they can be segregated from the employer’s assets, but no later than the 15 th business day of the month following the payday.” Delayed deposits can result in penalties.
  • Regular Testing. Certain compliance tests ensure that the benefits of your 401(k) plan are not disproportionately skewed towards higher-income employees:
  • ADP and ACP Tests:  Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) tests measure the fairness of deferrals and contributions among different groups of employees.
  • Top-Heavy Test:  This test evaluates if key employees own more than 60% of plan assets.

If your plan fails these tests, you’ll need to take corrective actions like refunding excess contributions to higher-earning employees or making additional contributions for lower-earning employees.

Compliance Watch-Outs

As with most things HR and payroll, you’ll need to keep a close eye on a few things:

  • Non-Discrimination Rules. As we mentioned previously, you need to be aware of the regulations that ensure your 401(k) plan does not discriminate in favor of highly compensated employees or owners.
  • Investment Oversight. You’re responsible for the selection and monitoring of investment options. Poor choices or excessive fees can lead to legal consequences under your fiduciary duties.
  • Form 5500. You’ll need to file Form 5500 every year to report financial conditions, investments, and operations. Failure to file or late filing can result in steep fines from both the IRS and DOL.
  • Fiduciary Responsibilities. The Employee Retirement Income Security Act (ERISA) imposes fiduciary duties on plan administrators. You must act solely in the interest of the plan participants and their beneficiaries. Failing to do so can open the door to lawsuits and regulatory actions.
  • Required Minimum Distributions (RMDs). As plan administrator, you’re responsible for initiating required minimum distributions for all 401(k) account holders starting at age 72. Failing to do this can result in a tax penalty of 50% of the amount not distributed as required.
  • Plan Audits. If your plan has 100 or more participants, an annual audit by a qualified independent accountant is generally required. Failing to meet audit requirements can lead to plan disqualification.

By giving due attention to these factors, self-administering a 401(k) can be a rewarding endeavor that adds substantial value to both your business and your employees. However, given the complexities and risks involved, you may want to consult regularly with a tax advisor or a certified financial planner specialized in retirement benefits.

Contribution Limits and Rules

Employee Contributions

  • Annual Contribution Limits : The annual limit is subject to periodic updates by the IRS. For 2023, the limit is $22,500 or $30,000 if the employee is 50 or older.
  • Catch-Up Contributions : Employees over 50 can make additional contributions, which for 2023 is set at $7,500.

Employer Contributions

  • Annual Employer Match Limits : Total combined 401(k) plan contributions by the employee and employer can’t exceed $66,000 ($73,500 for employees who are 50 or older). Total contributions can’t exceed 100% of an employee’s annual compensation.

Employer Matching and Vesting

Employer matching is highly flexible. You can set a flat rate or tier it based on employee salary or years of service. The key is to find a balance that motivates employee participation without straining your finances.

There are generally two types of vesting schedules:

  • Cliff Vesting : Employees become fully vested after a specific number of months or years.
  • Graded Vesting : Employees gradually become vested over time.

Investment Options

A well-structured 401(k) plan offers a range of investment options to suit different risk profiles and financial goals. The most common are mutual funds, although plans can offer everything from individual stocks and bonds, to target date funds, to real estate investment trusts (REITs).

Costs of Administration

The costs of 401(k) plan administration can vary widely depending on the plan type, the provider, and the range of services offered. While some plans charge a flat fee, others may charge a percentage of plan assets.

  • Setup Fees : Initial costs can range from $1,000 to $5,000.
  • Ongoing Fees : Expect to pay around 0.5% to 2% of the total plan assets annually.

Disclosing to Employees

It’s essential to educate your employees about their new retirement plan. Workshops, webinars, and one-on-one meetings are useful methods to communicate the ins and outs of their 401(k) options.

Implementing a 401(k) for small business is a win-win. It enables you to offer competitive compensation and flexible work arrangements, while also setting both you and your employees on a path towards financial security in retirement. With careful planning and ongoing administration, a 401(k) can be more than just an employee benefit; it can be a cornerstone of your business’s long-term success.

How Paycor Helps

Secure your employees’ futures with a tailored small business 401(k) plan , while ensuring their well-being. Paycor’s benefits solutions makes the process more manageable by reducing administrative work and mitigating compliance risk.

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Retirement Plan Options for Businesses Large and Small

401k plan options for small businesses

By: Vanessa McElwrath, CFP®, CPA, Wealth Management Partner

I spend a lot of time working with business owners, CFOs, and HR Directors to help them determine the right kind of retirement plan for businesses, keeping in mind what is best for them and their employees. There are quite a few different types of retirement plan options that cater to the particular needs of businesses of varying sizes — making it complicated to answer questions like, “What is the best retirement plan for small business owners and sole proprietors?” or “What is the best retirement plan for large enterprises?”

Fortunately, when it comes to the types of retirement plans offered by employers, three options stand out. The best plan for your business will depend on what you want to accomplish and how much flexibility you need. These are 401(k) plans, SEP IRAs, and SIMPLE IRAs.

The 401(k) Plan

By far the most popular retirement plan option offered to employees is the 401(k) plan . Of the various plan models, the 401(k) plan offers the most flexibility and the highest contribution limits. The 401(k) plan is often preferred because it enables business owners and employees to make the most consistent tax-deferred contributions. In 2020, employees can contribute up to $19,500 if under 50 years of age, $26,000 if 50 or older. If coupled with a profit-sharing plan, the total contribution limits are even higher.

Pros of a 401(k) Plan

Not only do 401(k)s offer higher contribution limits than most other types of retirement plans offered by employers, but they also offer more choices in terms of plan design to manage business costs and savings goals. For instance, you can institute a discretionary match on employee contributions, implement vesting parameters on match dollars, or offer a Roth 401(k) option for owners and employees who may fear higher tax rates down the road. You can also allow features such as employee loans or hardship withdrawals for increased flexibility.

Cons of a 401(k) Plan

However, with increased flexibility comes increased administrative and compliance oversight. Generally, 401(k) plans have higher administrative costs than IRA alternatives and require annual compliance tests and filings. This makes a 401(k) plan less attractive to those who are wondering what the best retirement plan is for a small business.

The SEP-IRA

The SEP stands for Simplified Employee Pension Plan. Compared to other retirement plan options, the biggest advantage of SEP-IRAs is that they have contribution limits similar to a 401(k) without the added compliance tests and reporting.

Pros of a SEP-IRA Plan

With a SEP-IRA, you can contribute up to 25% of your compensation or $57,000 (whichever is lower) into an IRA. As an added benefit, these SEP-IRA contributions are considered a deductible business expense, they do not count toward the individual IRA limit, and they do not count as yearly income for the employee. These annual contributions are also flexible and discretionary — this is good if cash flows are inconsistent from year to year.

Cons of a SEP-IRA Plan

Although relatively easy to set up and administer, the SEP-IRA does not have all the bells and whistles of a retirement plan options like a 401(k). Generally speaking, there is no option for Roth contributions , loans, profit sharing, or catch-up contributions for those over 50. It is also very important to note that 100% of the contributions are made by the employer (no employee contributions allowed) and are 100% immediately vested.

If you have employees, you must generally fund SEP-IRAs for them as well and the percentage of W-2 earnings must be uniform across all employees. So for example, if you as a business owner give yourself 25% of your W-2 earnings, your employees must receive 25% as well. For these reasons, SEP-IRAs tend to be more desirable retirement plan options for sole practitioners and firms that are asking the question, “What is the best retirement plan for a small business?”

The SIMPLE IRA

SIMPLE stands for Savings Incentive Match Plan for Employees. Like SEP-IRAs, these types of retirement plans offered by employers tend to be favored by small employers, as they are easy to set up and administer. Like 401(k)s, these plans also provide a single method for both the employer and employee to contribute.

How It Works

Under a SIMPLE plan, each participant has their own IRA set up under the plan and employees have the choice to contribute up to $13,500 (or up to $16,500 for those 50 years old and older) in 2020. Contributions are pre-tax and taken directly out of employees’ paychecks. Additionally, employers are required to make a 3% matching contribution or 2% non-elective contribution. Like other retirement plan options, the SIMPLE IRA allows employers a tax deduction for contributions made to the plan on behalf of employees.

Drawbacks of a SIMPLE IRA

The biggest drawback to a SIMPLE IRA compared to other retirement plan options is that the employee deferral limit is $13,500 (or $16,500 for those 50 and older) — the lowest of any of these options outlined — and are generally only allowed for businesses with less than 100 employees. The employer is also beholden to making inflexible contributions on behalf of employees.

Seek Professional Advice

As you can see, each one of the retirement plan options has its merits as well as drawbacks; there is no “one size fits all” solution. Before you make a decision about which plan is right for you, you should seek professional counsel — preferably from a fiduciary advisor — to weigh the different options and determine the best fit based on your goals and objectives.

Are you responsible for administering your company’s 401(k) plan? Are you wondering what the best retirement plan for a small business is? Would you like more insight and resources regarding the types of retirement plans offered by employers?

If so, subscribe to ML&R Wealth Management’s 401(k) Plan Services Quarterly Newsletter and schedule a complimentary consultation with an experienced wealth management advisor.

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Small business 401(k) FAQ

401(k) costs vary and fee structures differ from provider to provider. It is best to review each company's offering closely considering both near-term and long-term expenses as well as which fees are paid by the employer and the employee. Differences in pay fee structures can impact the long-term savings potential of the 401(k).

Yes, small businesses can offer a 401(k). There are plans designed for sole proprietors as well as companies with employees and each plan type has its own requirements and features. 401(k) plan providers often offer several options with varying fee structures.

Creating a 401(k) - sometimes called 'sponsoring a 401(k)' - involves a number of steps. Often times a plan provider will handle many of these steps for you. Activities required for establishing a 401(k) include selecting a plan, setting up a trust to hold plan assets, maintaining records of employee contributions and values, and providing information to plan participants. There are other administrative tasks as well like connecting your 401(k) plan contributions to your payroll process.

That depends. A small business owner who is actively involved in the business can participate in the company's 401(k) as an employee - making contributions on behalf of their own retirement savings. However, an owner who is passively involved may not be able to contribute. Consult with a certified financial advisor to better understand your options.

Sometimes. If you are a self-employed member of a small business that operates as an LLC, the IRS allows you to set up a 401(k) plan for yourself. But not every member of an LLC is eligible, as there are some restrictions. For example, the IRS doesn't consider a member’s passive involvement in an LLC as self-employment when no services are provided to the business. Such individuals may not be able to participate in that company's 401(k). Consult with a certified financial advisor to better understand your options.

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The amount of the tax credit each year is limited. Employers with up to 100 employees may be entitled to an annual tax credit for three years equal to 50% of the costs of starting up and administering a retirement plan and for participant education services. Employers with 50 employees or fewer may be entitled to 100% of the costs for these services. The maximum credit is up to the greater of (1) $500 or (2) the lesser of (1) $5,000 or (2) $250 multiplied by the number of non-highly compensated employees eligible to participate in the plan. An additional credit of $500 per year for the first three years is available to plans that offer an automatic enrollment feature that meets the requirements of an Eligible Automatic Contribution Arrangement (EACA) as defined in Internal Revenue Code Section 414(w)(3.) The maximum credit over 3 years of $16,500 is available to plans that cover at least 20 non-highly compensated employees and offer automatic enrollment.

Additionally, an annual tax credit for eligible employer contributions for five years of up to $1,000 per employee earning $100,000 or less may apply to employers with up to 50 employees but phases out from 51 to 100 employees.

The availability and amount of a tax credit depends on your situation. ADP does not provide tax advice, and you should consult with your own tax professional.

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How Do 401(k)s Work? Frequently Asked Questions

401k plan options for small businesses

If you're like most Americans, when you think ''retirement planning,'' you first turn to the 401(k) plan offered by your employer. After all, it's the most common type of retirement plan out there. However, 401(k) plans can be complex, and it's not always easy to understand exactly how these plans work. 

So, what are some important things to know about a 401(k)? We've got answers to many common 401(k) questions.

How does a 401(k) work?

A 401(k) is a tax-advantaged retirement plan that is set up and managed by an employer. Basically, you put money into the 401(k) where it can be invested and potentially grow tax free over time. In most cases, you choose how much money you want to contribute to your 401(k) based on a percentage of your income. Your employer automatically withholds a portion of each paycheck and puts it into the account.

With a traditional tax-deferred 401(k) , this money is taken out of your paycheck before federal income taxes are figured, providing you the chance to reduce your taxes today. You pay ordinary income taxes on the pre-tax contributions and growth when you make a withdrawal in retirement. Note: You must be older than 59 1/2 (age 55 if you separate from your current employer) to avoid penalties on withdrawals .

Some employers offer a Roth 401(k) . Contributions to these plans are made with after-tax money, which means you don't get a tax deduction. Instead, your money can potentially grow tax free and be withdrawn in retirement without any taxes. Note: To avoid penalties and/or taxes on withdrawals, you must hold the account for at least five years and be older than 59 1/2 (age 55 if you separate from your current employer).

In both types of plans, you typically have a separate account in the 401(k) registered in your name, and you'll get regular statements. Generally, you can choose from a range of investments to fit your risk tolerance and time to retirement. Each 401(k) plan tends to offer different investments, as well as whether you must pick your own investments or choose to have your account managed for you.

How much can I contribute to my 401(k)?

Your contribution to a 401(k) depends on the limits set by the IRS each year. The IRS looks at inflation to determine the annual contribution limits. For 2024, the employee deferral limit is $23,000. For those 50 or older, the IRS allows ''catch-up'' contributions of up to $7,500, for a total contribution of $30,500. 

It's a good idea to review the contributions you set up on your account annually, to ensure you’re putting away as much as possible.

How does 401(k) matching work?

One of the most important aspects of a 401(k) is the matching contributions your employer can make to your account. It’s basically a "free" contribution.

Typically, employer matching contributions are based on a percentage of the contribution you make and a percentage of your wages. For example, let's say you earn $6,000 per month, and your employer matches 50% of your contributions up to 6% of your wages. If you wanted to get the full match, you'd need to contribute at least $360 per month (6% of your monthly wages) to your account, and your employer would kick in an additional $180 (50% of $360) to match your contribution. As a result, your retirement account would see a combined contribution of $540 per month.

A common 401(k) question about employer matching is whether employer match counts toward your annual contribution limit. The good news is that it doesn't. However, there's a separate limit that affects overall contributions to your 401(k). For 2024, the combined contributions you and your employer can make to the account is $69,000 ($76,500 if you're 50 and older and making catch-up contributions). Of course, the maximum contribution can never exceed 100% of your compensation from the employer.

What is 401(k) vesting?

One of the most important things to understand is how 401(k) vesting works. Vesting is a term that describes how much of the money in your account is actually yours if you were to leave the company or take a distribution.

The contributions you make yourself are immediately vested and considered yours. However, in some companies, matching or other employer contributions aren't considered yours until you've remained with the company for a set period of time. So, if the company has a vesting schedule, you might not be able to keep all the money your employer invests on your behalf until after you've stayed at the company for the required time frame.

What happens if I make a 401(k) early withdrawal?

Generally, if you take money from your account before you reach age 59 ½, you'll have to pay taxes on the amount, plus pay a 10% penalty to the IRS. But there are some exceptions to the early withdrawal penalty.

One exception is known as the Rule of 55—if you lose (or leave) your job at age 55 or older and take distributions from the 401(k) associated with your most recent job, you won't have to pay the 10% penalty. Some other circumstances that might allow you to avoid the 10% penalty include:

  • Certain qualified birth or adoption expenses
  • A series of substantially equal payments
  • Permanent disability

You might have to provide documentation to avoid penalty in these cases, so make sure you're prepared to do so. To learn more about the exemptions to the 10%, see the IRS website .

Can I contribute to an IRA and 401(k)?

Yes, it's possible to contribute to both a traditional individual retirement account (IRA) and a 401(k). However, if you’re eligible to contribute to a 401(k), then your IRA tax deduction may be limited, but your IRA contribution will not. Whether you actually contribute to the 401(k) is irrelevant—merely being eligible for a 401(k) means you'll have to review your modified adjusted gross income to determine if your IRA contribution is eligible for a tax deduction. But the IRA contributions you make won’t affect your 401(k) contributions. Check out IRS Publication 590-A for an explanation of the IRA deduction rules.

How much should I contribute to my 401(k)?

How much you should contribute to your 401(k) depends on your retirement goals and how much you hope to amass in your nest egg by the time you retire. While you don't have to contribute the maximum allowed by the IRS, it's worth noting that the more you invest now, the more of a head start you'll likely have toward a comfortable retirement.

If you have more questions, be sure to ask a tax professional or financial advisor for more information about using a 401(k) to your advantage.

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The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. 

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed. 

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Investing involves risk, including loss of principal.

The information and content provided herein is general in nature and is for informational purposes only. It is not intended, and should not be construed, as a specific recommendation, individualized tax, legal, or investment advice. Tax laws are subject to change, either prospectively or retroactively. Where specific advice is necessary or appropriate, individuals should contact their own professional tax and investment advisors or other professionals (CPA, Financial Planner, Investment Manager) to help answer questions about specific situations or needs prior to taking any action based upon this information.

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Is a SIMPLE 401(k) Plan Right For Me?

What is a simple 401(k) plan & how do you utilize it.

T he Savings Incentive Match Plan for Employees 401(k), or SIMPLE 401(k), is a simplified version of a traditional 401(k). SIMPLE plans were created so that small businesses could have a cost-efficient way to offer a retirement account to their employees.

Unlike many other workplace retirement plans, SIMPLE 401(k) plans do not require annual nondiscrimination tests to ensure that a plan is in line with IRS rules. This type of testing can be prohibitively expensive for small employers, preventing them from using other types of 401(k)s.

A SIMPLE 401(k) retirement plan is available to businesses with 100 or fewer employees including sole proprietorships, partnerships, and corporations. For small business owners or self-employed individuals, understanding how SIMPLE plans work can help decide whether it makes sense to set one up.

For employees whose employer already offers a SIMPLE 401(k), getting to know the ins and outs of the plan can help to understand the role they play in saving for retirement.

How Does a SIMPLE 401(k) Work?

A SIMPLE 401(k) functions much like a regular  401(k) . Employees contribute pre-tax money directly from their paycheck and invest that money in a handful of options offered by the plan administrator.

In 2024, the SIMPLE 401(k) limits are as follows: The maximum for employee elective deferrals is $16,000 ($15,500 in 2023); employees 50 and older could make an additional “catch-up” contribution of $3,500 to boost their savings as they neared retirement.

One significant difference between traditional 401(k) plans and SIMPLE 401(k) plans is that while employer contributions are optional with a 401(k) plan, under a SIMPLE 401(k) plan they are mandatory and clearly defined. Employers must make either a  matching contribution  of up to 3% of each employee’s pay or make a nonelective contribution (independent of any employee contributions) of 2% of each eligible employee’s pay. The contribution must be the same for all plan participants: For example, an employer couldn’t offer himself a 3% match while offering his employees a 2% nonelective contribution.

There are other limits on how much an employer can contribute. The maximum compensation that could be used to figure out employer contributions and benefits is $345,000 for 2024 ($330,000 for 2023). So if an employer offered a 2% nonelective contribution and an employee made $355,000 a year, the maximum contribution the employer could make would be 2% of $345,000, or $6,900.

As with a regular 401(k), contributions to a SIMPLE plan grow tax-deferred — meaning an employee contributes pre-tax dollars to their plan, and doesn’t pay income tax on that money until they withdraw funds upon retirement. Typically, the tax-deferred growth means that there is more money subject to compounding interest, the returns investments earn on their returns.

Withdrawals made during retirement are subject to income tax.

(Learn more:  Personal Loan Calculator ) 

Who Is Eligible for a SIMPLE 401(k)?

To be eligible for a SIMPLE 401(k), employers must have 100 or fewer employees. They cannot already offer these employees another retirement plan, and must offer the plan to all employees 21 years and older.

Employers must also file Form 5500 every year if they establish a plan.

For employees to be eligible, they must have received at least $5,000 in compensation from their employer in the previous calendar year. Employers cannot require that employees complete more than one year of service to qualify for the SIMPLE plan.

A SIMPLE IRA is also one of a number of  retirement options for the self-employed .

What Are the Pros of a SIMPLE 401(k) Plan?

SIMPLE 401(k)s offer a number of benefits that make them attractive to employers and employees.

  • Simplified rules: While large companies may have the money and staff to devote to nondiscrimination testing, smaller companies may not have the same resources. SIMPLE 401(k)s do not have these compliance rules, making them more accessible for small employers. What’s more, the straightforward benefit formula is easy for employers to administer.
  •  “Free money”: Employees are guaranteed employer contributions to their retirement account, whether via 3% matching contributions or 2% nonelective contributions.
  • Fully-vested contributions: All contributions — those made by employees and their employers — are fully vested immediately. Employees who qualify for distributions can take money out whenever they need it. While this can be good news for employees, for employers it removes the option to incentivize workers to stay in their job longer by having their contributions vest several years into their tenure with the company.
  • Loans and hardship withdrawals: While withdrawals made before age 59 ½ are subject to tax and a possible 10% early withdrawal penalty, employees can take out loans against their SIMPLE 401(k) just as they can with a traditional 401(k). These options add flexibility for individuals who need money in an emergency. It’s important to note that  401(k) loans  come with strict rules for paying them back. Failing to follow these rules may result in penalties.

What Are the Cons of a SIMPLE 401(k) Plan?

While there are plenty of positives that come from offering or contributing to a SIMPLE 401(k), there are also some important downsides.

  • Plan limitations: Employers cannot offer employees covered by a SIMPLE 401(k) another retirement plan.
  • Lower contribution limits: For 2024, a traditional 401(k) plan allows for $23,000 annual  maximum 401(k) contributions  from employees, with an additional $7,500 catch-up contribution for those 50 and older. These contribution limits are considerably higher than SIMPLE plan limits, which in 2024 are $16,000 with an additional “catch-up” contribution of $3,500 for employees over age 50. This means an employee could potentially contribute an additional $7,000 in elective deferrals and $4,000 in  catch-up contributions with a traditional 401(k)  rather than a SIMPLE 401(k).
  • Limited size: SIMPLE Plans are only available to employers with fewer than 100 employees. That means if a business grows beyond that point, they have a two-year grace period to switch from their SIMPLE plan to another option.

SIMPLE 401(k) vs SIMPLE IRA

Generally speaking, when comparing  SIMPLE IRAs  and SIMPLE 401(k)s, the rules are similar:

  • They’re only available to businesses with 100 or fewer employees.
  • Employers must either offer a 3% matching contribution or a 2% nonelective contribution.
  • Employers can only make contributions on up to $345,000 in employee compensation in 2024.
  • Employee contribution limits to SIMPLE IRAs are the same as their 401(k) counterparts.
  • Employer and employee contributions are fully vested immediately.

There are a few differences worth mentioning:

  • Whereas all employer contributions are subject to the cap for SIMPLE 401(k)s, only nonelective contributions are subject to the $345,000 compensation cap for SIMPLE IRAs. (This makes it possible that employees making more than $345,000 annually may receive higher matching contributions from a SIMPLE IRA than they would from a SIMPLE 401(k).)
  • If employers make matching contributions of 3%, they may elect to limit their contribution to no less than 1% for two out of every five years.
  • SIMPLE IRAs do not allow employees to take out loans from their account for any reason.
  • There are no minimum age requirements for SIMPLE IRA contributions.

The Takeaway

SIMPLE 401(k) plans can be especially attractive for self-employed individuals or small business owners, as they have many of the same benefits of a traditional 401(k) plan — including tax-deferred contributions and loan options — but without the administrative compliance costs that come with a regular 401(k) plan.

SIMPLE 401(k) plans can be especially attractive for self-employed individuals or small business owners.

Some of the requirements and rules associated with a SIMPLE 401(k) plan might be unattractive to some employers, however, including the fact that the IRS prohibits employers from offering other types of retirement plans to employees who are covered by a SIMPLE 401(k).

There are many answers to the question of  which retirement savings plan is right for you  or your business. Beyond traditional 401(k) and SIMPLE (401)k plans, there are traditional, Roth, SIMPLE and SEP IRAs, among other options.

This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.

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401(k) Plans For Small Businesses

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Why 401(k) Plans?

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

A 401(k) plan:

  • Helps attract and keep talented employees.
  • Allows participants to decide how much to contribute to their accounts.
  • Benefits a mix of rank-and-file employees and owners/managers.
  • Helps money grow through investments in stocks, bonds, mutual funds, money market funds, savings accounts, and other investment vehicles.
  • Offers significant tax advantages (including deduction of employer contributions and deferred taxation on contributions and earnings until distribution).
  • Allows participants to take their benefits with them when they leave the company, easing administrative responsibilities.

This publication provides an overview of 401(k) plans. For more information, resources for both you and your employees are listed 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 you establish and maintain the plan. In addition, there are four initial steps for setting up a 401(k) plan:

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

Adopt a written plan document – Plans begin with a written document that serves as the foundation for day-to-day plan operations. If you hired someone to help with your plan, they will likely provide the document. If not, consider getting 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 plan best for you – a traditional 401(k) plan, a safe harbor 401(k) plan, or an automatic enrollment 401(k) plan. In all the plans, participants can contribute through salary deductions.

A traditional 401(k) plan offers the most flexibility. Employers can decide whether to contribute for all participants, to match employees' deferrals, to do both, or to do neither. These contributions can be subject to a vesting schedule, which means an employee only has a right to employer contributions after a certain amount of time. Annual testing ensures that benefits for rank-and-file employees are proportional to benefits for owners/managers.

Safe harbor 401(k) plans are not subject to the annual contributions testing that traditional 401(k) plans require. In exchange for avoiding annual testing, employees in these plans must receive a certain level of employer contributions. Under the most popular safe harbor 401(k) plan, employees are immediately vested in employer contributions.

An automatic enrollment 401(k) plan allows you to automatically enroll employees and place their salary deductions in certain default investments unless the employee elects otherwise. This is an effective way for employers to increase participation in their 401(k) plans.

The traditional, safe harbor, and automatic enrollment plans are for employers of any size.

This booklet addresses traditional and safe harbor 401(k) plans. For more information on automatic enrollment 401(k) plans, see Automatic Enrollment 401(k) Plans for Small Businesses (Publication 4674).

Once you have decided on the type of plan for your company, you have flexibility in choosing some of the plan's features, such as which employees can contribute to the plan and how much. Other features are required by law. For instance, the plan document must describe certain key processes, such as how contributions are deposited in the plan.

Arrange a trust for the plan's assets – A plan's assets must be held in trust to assure that the assets are used solely to benefit the participants and their beneficiaries. The trust must have at least one trustee to handle contributions, plan investments, and distributions. Because the financial integrity of the plan depends on the trustee, selecting a trustee is one of the most important decisions you will make in establishing a 401(k) plan. If you set up your plan through insurance contracts, the contracts do not need to be held in trust.

Develop a recordkeeping system – An accurate recordkeeping system will track and properly attribute contributions, earnings, losses, plan investments, expenses, and benefit distributions. If a contract administrator or financial institution assists in managing the plan, that entity typically will help keep the required records. In addition, a recordkeeping system will help you, your plan administrator, or your financial provider prepare the plan's annual return/report that must be filed with the Federal Government.

Provide plan information to employees eligible to participate – You must notify employees who are eligible to participate in the plan about certain benefits, rights, and features.

In addition, a summary plan description (SPD) must be provided to all participants. The SPD is the primary way to inform participants and beneficiaries about the plan and how it operates. It typically is created with the plan document. (For more information on the required contents of the SPD, see Disclosing Plan Information to Participants .)

You also may want to provide your employees with information that discusses the advantages of your 401(k) plan. The benefits to employees – such as pretax contributions to a 401(k) plan (or tax-free distributions in the case of Roth contributions), employer contributions (if you choose to make them), and compounded tax-deferred earnings – help highlight the advantages of participating in the plan.

A 401(k) plan may be established as late as the due date (including extensions) of the company's income tax return for the year you want to establish the plan.

For example, if your business's fiscal year ends on December 31, 2022, and you filed for the automatic 6-month extension, the company's tax return would be due on October 15, 2023. You could adopt a plan in 2023 as late as October 15 and make it effective on December 31, 2022. You're not allowed to have 401(k) salary deferrals prior to the date you adopt a 401(k) plan. However, you could make an initial profit sharing contribution to the 401(k) plan for 2022, no later than October 15, 2023.

Operating a 401(k) Plan

Once you establish a 401(k) plan, you assume certain responsibilities in operating it. If you hired someone to help set up your plan, that arrangement also may include help in operating the plan. If not, you'll need to decide whether to manage the plan yourself or to hire a professional or financial institution to take care of some or most aspects of operating the plan.

Elements of operating 401(k) plans include:

Participation

Contributions, nondiscrimination.

  • Investing the contributions
  • Fiduciary responsibilities
  • Disclosing plan information to participants
  • Reporting to government agencies
  • Distributing plan benefits

Typically, a plan includes a mix of rank-and-file employees and owners/managers. However, a 401(k) plan may exclude some employees if they:

  • Are younger than 21,
  • Have completed less than 1 year of service,
  • Are covered by a collective bargaining agreement, if retirement benefits were the subject of good faith bargaining, or
  • Are certain nonresident aliens.

In all 401(k) plans, participants can contribute through salary deductions. You can decide how much your business contributes to participants' accounts in the plan.

Traditional 401(k) Plan

If you decide to contribute to your 401(k) plan, you have options. You can contribute a percentage of each employee's compensation (a nonelective contribution), you can match the amount your employees contribute (a matching contribution), or you can do both.

For example, you may decide to add a matching contribution – say, 50 percent – to an employee's contribution, which results in a 50-cent increase for every dollar the employee sets aside.

Using a matching contribution formula will provide employer contributions only to employees who contribute to the 401(k) plan. If you choose to make nonelective contributions, the employer contribution goes to each eligible participant, whether or not the participant decides to contribute to their 401(k) plan account.

Under a traditional 401(k) plan, you have the flexibility of changing the amount of employer contributions each year, according to business conditions.

Safe Harbor 401(k) Plan

Under a safe harbor plan, you can match each eligible employee's contribution, dollar for dollar, up to 3 percent of the employee's compensation, and 50 cents on the dollar for the employee's contribution that exceeds 3 percent, but not 5 percent, of the employee's compensation.

Alternatively, you can make a nonelective contribution equal to 3 percent of compensation to each eligible employee's account.

Each year you must make either the matching contributions or the nonelective contributions. The plan document will specify which contributions will be made, and this information must be provided to employees before the beginning of each year.

Roth Contributions

401(k) plans may permit employees to make after-tax contributions through salary deduction. These designated Roth contributions, as well as gains and losses, are accounted for separately from pretax contributions. However, designated Roth contributions are treated the same as pretax contributions for most aspects of plan operations, such as contribution limits.

A 401(k) plan may allow participants to transfer certain amounts in the plan to their designated Roth account in the plan.

Contribution Limits

Employer and employee contributions and forfeitures (nonvested employer contributions of terminated participants) are subject to a per-employee overall annual limit. This limit is the lesser of:

  • 100 percent of the employee's compensation, or
  • $61,000 for 2022 and $66,000 for 2023.

In addition, the amount employees can contribute under any 401(k) plan is limited to $20,500 for 2022 and $22,500 for 2023. This includes both pre-tax employee salary deferrals and after-tax designated Roth contributions (if permitted under the plan).

All 401(k) plans may allow catch-up contributions of $6,500 for 2022 and $7,500 for 2023 for employees 50 and older.

Employee salary deferrals are immediately 100 percent vested – that is, the money that an employee has contributed to the plan cannot be forfeited. When an employee leaves employment, they are entitled to that money, plus any investment gains (or minus losses).

In safe harbor 401(k) plans, all required employer contributions are always 100 percent vested. In traditional 401(k) plans, you can design your plan so that employer contributions vest over time, according to a vesting schedule.

To preserve the tax benefits of a 401(k) plan, the plan must provide substantive benefits for rank-and-file employees, not just business owners and managers. These requirements are called nondiscrimination rules and compare both plan participation and contributions of rank-and-file employees to owners/managers.

Traditional 401(k) plans are subject to annual testing to ensure that the contributions made for rank-and-file employees are proportional to contributions made for owners and managers. In most cases, safe harbor 401(k) plans are not subject to annual nondiscrimination testing.

Investing the Contributions

After you decide on the type of 401(k) plan, you can consider the variety of investment options. In designing a plan, you will need to decide whether you will permit your employees to direct the investment of their accounts or if you will manage the monies on their behalf.

If you allow participants to direct their investments, you must decide what investment options to make available. Depending on the plan design you choose, you may want to hire someone either to determine the investment options or to manage the plan's investments. Continually monitoring the investment options ensures that your selections remain in the best interests of your plan and its participants.

Fiduciary Responsibilities

Many of the actions needed to operate a 401(k) plan involve fiduciary decisions. This is true whether you hire someone to manage the plan for you or do some or all of the plan management yourself. Controlling the assets of the plan or using discretion in administering and managing the plan makes you and the entity you hire a plan fiduciary. Providing investment advice for a fee also makes someone a fiduciary. Hiring someone to perform fiduciary functions is itself a fiduciary act. Fiduciary status is based on the functions performed for the plan, not a title.

Some decisions for a plan are business decisions, rather than fiduciary decisions. For instance, the decisions to establish a plan, to include certain features in a plan, to amend a plan, and to terminate a plan are business decisions. When making these decisions, you are acting on behalf of your business, not the plan, and therefore, you would not be a fiduciary. However, when you take steps to implement these decisions, you (or those you hire) are acting on behalf of the plan and, in carrying out these actions, may be a fiduciary.

Basic Responsibilities

Fiduciaries are in a position of trust with respect to the participants and beneficiaries in the plan. The fiduciary's responsibilities include:

  • Acting solely in the interest of the participants and their beneficiaries;
  • Acting for the exclusive purpose of providing benefits to workers participating in the plan and their beneficiaries;
  • Paying only reasonable plan expenses;
  • Carrying out duties with the care, skill, prudence, and diligence of a prudent person familiar with such matters;
  • Following the plan documents; and
  • Diversifying plan investments.

These are the responsibilities that fiduciaries need to keep in mind. The responsibility to be prudent covers a wide range of functions needed to operate a plan. Because all these functions must be carried out in the same way a prudent person would, you may want to consult experts in investments, accounting, and other fields, as appropriate.

In addition, for some functions, there are specific rules that help guide the fiduciary. For example, the deductions from employees' paychecks for contribution to the plan must be deposited with the plan as soon as reasonably possible, but no later than the 15th business day of the month following the payday. If you can reasonably make the deposits in a shorter time frame, you must do so.

For plans with fewer than 100 participants, salary reduction contributions deposited with the plan no later than the 7th business day following withholding by the employer will be considered contributed in compliance with the law.

For all contributions — employee and employer (if any) — the plan must designate a fiduciary, typically the trustee, to make sure that contributions due to the plan are transmitted. If the plan and other documents are not clear on this, the trustee generally has this responsibility. In addition, you (or those you hire) will need to update the plan document for changes in the law.

Limiting Liability

With these responsibilities, there is also some potential liability. However, you can take actions to limit your liability and demonstrate that you carried out your responsibilities properly.

The fiduciary responsibilities cover the process used to carry out the plan functions rather than simply the results. For example, if you or someone you hire makes the investment decisions for the plan, an investment does not have to be a “winner” if it was part of a prudent overall diversified investment portfolio for the plan. Because a fiduciary needs to carry out activities through a prudent process, you should document the decision-making process to demonstrate the rationale at the time a decision was made.

In addition to the steps above, there are other ways to limit potential liability. The plan can be set up to give participants control of investments in their accounts. For participants to have control, they must have sufficient information on the specifics of their investment options. If properly executed, this type of plan limits your liability for participants' investment decisions. You can also hire a service provider or providers to handle some or most of the fiduciary functions, setting up the agreement so that the person or entity then assumes liability.

Hiring a Service Provider

Even if you do hire a financial institution or retirement plan professional to manage the plan, you retain some fiduciary responsibility for the decision to select and keep that person or entity as the plan's service provider. So, you should document your selection process and monitor the services provided to determine if you need to make a change.

For a service contract or arrangement to be reasonable, service providers must give you certain information about the services they will provide to your plan and all of the compensation they will receive. This information will assist you in understanding the services, assessing the reasonableness of the compensation (direct and indirect), and determining any conflicts of interest that may impact the service provider's performance.

Some additional items to consider in selecting a plan service provider:

  • Information about the firm itself: affiliations, financial condition, experience with 401(k) plans, and assets under its control
  • A description of business practices: how plan assets will be invested if the firm will manage plan investments or how participant investment directions will be handled
  • Information about the quality of prospective providers: the identity, experience, and qualifications of the professionals who will be handling the plan's account; any recent litigation or enforcement action that has been taken against the firm; the firm's experience or performance record; if the firm plans to work with any of its affiliates in handling the plan's account; and whether the firm has fiduciary liability insurance

If your service provider is responsible for maintaining plan records and keeping participant data confidential and plan accounts secure, use a service provider who follows strong cybersecurity practices. To prudently select and monitor such a service provider, ask for:

  • Information about a firm's business practices: its information security standards, practices, policies, and annual audit results available to plan clients; how it validates its practices; and whether it has insurance policies that cover losses caused by cybersecurity and identity theft breaches (whether caused by internal or external threats)
  • Information about the quality of the firm's services: its track record in the industry, including security incidents, other litigation, and legal proceedings related to its services; and for prior security breaches, what happened and how it responded

For more tips for hiring a service provider with strong cybersecurity practices, including terms and provisions recommended for inclusion in service provider contracts, visit DOL's cybersecurity website .

For information on cybersecurity best practices that service providers should follow, see DOL's website .

Once hired, you should continue to monitor your service provider.

  • Evaluate any notices the service provider furnishes about possible changes to their compensation and the other information they provided when hired (or when the contract or arrangement was renewed);
  • Review the service provider's performance;
  • Read any reports they provide;
  • Check actual fees charged;
  • Ask about policies and practices (such as trading, investment turnover, and proxy voting); and
  • Follow up on participant complaints.

For more information, see Understanding Retirement Plan Fees and Expenses .

Providing Information in Participant-Directed Plans

When plans allow participants to direct their investments, fiduciaries need to take steps regularly to make participants aware of their related rights and responsibilities. This includes providing plan- and investment-related information, including information about fees and expenses that participants need to make informed decisions about the management of their individual accounts.

You (or those you hire) must provide that information to participants before they can first direct their investment in the plan and annually thereafter. The investment-related information needs to be presented in a format, such as a chart, that allows for comparison of the plan's investment options. A model chart is available.

If you use information provided by a service provider that you rely on reasonably and in good faith, you will be protected from liability for the completeness and accuracy of the information.

Prohibited Transactions and Exemptions

Some transactions are prohibited under the law to prevent dealings with parties that have certain connections to the plan, self-dealing, or conflicts of interest that could harm the plan. However, there are several exceptions under the law, and additional exemptions may be granted by the U.S. Department of Labor if protections for the plan are in place in conducting the transactions.

One exemption allows fiduciary investment advisers to provide investment advice to participants who direct the investments in their accounts. The exemption applies to buying, selling, or holding an investment related to the advice, as well as to receiving related fees and other compensation by a fiduciary adviser. Please see DOL's website for more information.

Another exemption in the law permits you to offer loans to participants through your plan. If you do, the loan program must be carried out in a way that protects the plan and all other participants. Each loan request decision is treated as a plan investment and considered accordingly.

Anyone handling plan funds or other plan property generally must be covered by a fidelity bond to protect the plan against loss resulting from fraud and dishonesty by those covered by the bond.

Disclosing Plan Information to Participants

Plan disclosure documents keep participants informed about how the plan operates, alert them to changes in the plan's structure and operations, and give them a chance to make decisions and take timely action on their accounts.

The summary plan description (SPD) is a plain-language explanation of the plan and must be comprehensive enough to inform participants of their rights and responsibilities. It also informs participants about the plan features and what to expect of the plan.

Among other things, the SPD must include information about:

  • When and how employees become eligible to participate in the 401(k) plan,
  • The contributions to the plan,
  • How long it takes to become vested,
  • When employees are eligible to receive their benefits,
  • How to file a claim for those benefits, and
  • Participants' basic rights and responsibilities under the Employee Retirement Income Security Act (ERISA).

The SPD should include an explanation about the administrative expenses that will be paid by the plan. The plan administrator must give this document to participants when they join the plan and to beneficiaries when they first receive benefits. SPDs must also be redistributed periodically during the life of the plan.

A summary of material modifications (SMM) informs participants of changes made to the plan or to the information in the SPD. When such changes occur, all participants must automatically receive either an SMM or an updated SPD within a specified number of days after the change.

An individual benefit statement shows:

  • The total plan benefits earned by a participant,
  • Vested benefits,
  • The value of each investment in the account,
  • Information describing the ability to direct investments, and
  • For plans with participant direction, an explanation of the importance of a diversified portfolio.

Plans that provide for participant-directed accounts must furnish quarterly individual benefit statements. Plans that do not provide for participant direction must furnish statements annually.

As noted above, plans that allow participants to direct the investments in their accounts must provide participants with plan and investment information, including information about fees and expenses, before they can first direct investments and annually thereafter. At least quarterly, they also must provide participants with information on the fees and expenses actually paid. The initial plan-related information may be distributed as part of the SPD provided when a participant joins the plan as long as it is provided before the participant can first direct investments. The information provided quarterly may be included with the individual benefit statement.

A summary annual report is a narrative of the plan's annual return/report, the Form 5500, filed with the Federal Government (see Reporting to Government Agencies for more information). The plan administrator must furnish it to participants annually.

A blackout period notice gives employees advance notice when a blackout period occurs, typically when plans change recordkeepers or investment options, or when plans add participants because of corporate mergers or acquisitions. During a blackout period, participants' rights to direct investments, take loans, or obtain distributions are suspended.

You can furnish these disclosures in paper or electronically. To provide them electronically, you may either post them on a plan website or email them to plan participants, after notifying participants that disclosures will be furnished electronically. There are a number of protections for participants receiving electronic disclosures, including the right to request paper copies of disclosures or to opt out of electronic delivery. You also need to take reasonable steps to protect the confidentiality of participants' personal information online. For more information, see DOL's website .

Reporting to Government Agencies

In addition to the disclosure documents that provide information to participants, plans must also report certain information to Government entities.

Form 5500 Annual Return/Report of Employee Benefit Plans

Plans must file an annual return/report with the Federal Government, in which information about the plan and its operation is disclosed to the IRS and the U.S. Department of Labor.

Depending on the number and type of participants covered, most 401(k) plans must file one of the following forms:

  • Form 5500 , Annual Return/Report of Employee Benefit Plan
  • Form 5500-SF , Short Form Annual Return/Report of Small Employee Benefit Plan
  • Form 5500-EZ , Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan

Plans file the Form 5500 or Form 5500-SF electronically through a web-based system called EFAST2. These returns/reports are made available to the public. One-participant plans or foreign plans may file Form 5500-EZ electronically on EFAST2 or on paper with the IRS. Form 5500-EZ returns are not made available to the public.

One-participant plans (which cover only sole proprietors – whether incorporated or not — partners, and spouses) with total assets of $250,000 or less at the end of the plan year are exempt from the annual filing requirement. However, you must file a final return/report if you terminate the plan, regardless of the value of the plan's assets.

Form 1099-R

Form 1099-R , Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. is generally used to report distributions (including rollovers) from a retirement plan. It is given to both the IRS and recipients of distributions from the plan during the year.

Form 8955-SSA

Form 8955-SSA , Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits , is used to report separated participants with deferred vested benefits under the plan. It is filed with the IRS. The information is generally given to the Social Security Administration and to each deferred vested participant in an individual statement by the plan administrator.

Distributing Plan Benefits

The amount of benefits in a 401(k) plan is dependent on a participant's account balance at the time of distribution.

When participants are eligible to receive a distribution, 401(k) plans typically allow participants to:

  • Take a lump sum distribution of their account,
  • Roll over their account to an IRA or another employer's retirement plan, or
  • Take periodic distributions.

More employers are offering annuity or other lifetime income distribution options in their defined contribution plans for employees who want to ensure that they do not outlive their retirement savings. You may want to look into what other employers are doing.

Terminating a 401(k) Plan

401(k) plans must be established with the intention of being continued indefinitely. However, business needs may require employers to terminate their plans. For example, you may want to establish another type of retirement plan instead of the 401(k) plan.

Typically, the process of terminating a 401(k) plan includes amending the plan document, distributing all assets, and filing a final Form 5500. You must also notify your employees that the plan will be discontinued. Check with your plan's financial institution or a retirement plan professional to see what else you must do to terminate your 401(k) plan.

Even with the best intentions, those operating the plan can still make mistakes. The Department of Labor and IRS have correction programs to help 401(k) plan sponsors correct plan errors, protect participants' interests, and keep the plan's tax benefits. These programs are structured to encourage early correction. Having an ongoing review program makes it easier to spot and correct mistakes in plan operations.

See the Resources section for further information.

A 401(k) Plan Checklist

  • Which type of 401(k) plan best suits your business?
  • Will you hire a financial institution or retirement plan professional to help with setting up and running the plan?
  • Will you make contributions to the plan, and, if so, will you make nonelective and/or matching contributions? (Remember, you may design your plan so that you may change your nonelective contributions if necessary due to business conditions.)
  • Have you adopted a written plan that includes the features you want to offer, such as whether participants will direct the investment of their accounts?
  • Have you notified eligible employees and provided them with information to help in their decision-making?
  • Have you arranged a trust for the plan assets, or will you set up the plan solely with insurance contracts?
  • Have you developed a recordkeeping system?
  • Do you understand your fiduciary responsibilities?
  • How will you monitor the plan's service providers and investments?
  • Do you understand the reporting and disclosure requirements of a 401(k) plan?

For help establishing and operating a 401(k) plan, you may want to talk to a retirement plan professional or a representative of a financial institution offering retirement plans. You should also speak to a qualified tax professional about your particular situation and take advantage of the help available in the Resources section.

To find this publication and more information on retirement plans, visit:

The U.S. Department of Labor's Employee Benefits Security Administration

  • Information for small businesses
  • Retirement saving information for employers and employees

Internal Revenue Service

  • Guidance for maintaining your 401(k) plan
  • Retirement Plans Startup Costs Tax Credit
  • 401(k) Plan Checklist

In addition, the following jointly developed publications are available on the DOL and IRS websites or can be ordered electronically or by calling toll-free 866-444-3272:

  • Choosing a Retirement Solution for Your Small Business , Publication 3998, provides an overview of retirement plans available to small businesses.
  • Automatic Enrollment 401(k) Plans for Small Businesses , Publication 4674, explains a type of retirement plan that allows small businesses to increase plan participation.
  • Adding Automatic Enrollment to Your 401(k) Plan , Publication 4721, explains how to add automatic enrollment to your existing 401(k) plan.
  • Payroll Deduction IRAs for Small Businesses , Publication 4587, describes an arrangement that is an easy way for businesses to give employees an opportunity to save for retirement.
  • Profit Sharing Plans for Small Businesses , Publication 4806, describes a flexible way for businesses to help employees save for retirement.
  • SEP Retirement Plans for Small Businesses , Publication 4333, describes a low-cost retirement savings option for small businesses.
  • SIMPLE IRA Plans for Small Businesses , Publication 4334, describes a type of retirement plan designed especially for small businesses.

For business owners with a plan

  • Retirement Plan Correction Programs , Publication 4224, briefly describes the IRS and DOL voluntary correction programs.

Related materials available from DOL

For small businesses.

  • Meeting Your Fiduciary Responsibilities
  • Understanding Retirement Plan Fees and Expenses
  • Selecting an Auditor for Your Employee Benefit Plan
  • Reporting and Disclosure Guide for Employee Benefit Plans
  • Tips for Selecting and Monitoring Service Providers for Your Employee Benefit Plan

In addition, DOL's Small Business Retirement Savings Advisor helps small business owners choose the most appropriate retirement plan for their businesses and provides resources on maintaining plans.

For employees

  • A Look at 401(k) Plan Fees
  • What You Should Know about Your Retirement Plan (also in Spanish, Arabic, Simplified Chinese, Traditional Chinese, French, Haitian Creole, Korean, Polish, Portuguese, Russian, Tagalog, and Vietnamese)
  • Savings Fitness: A Guide to Your Money and Your Financial Future (also in Spanish)
  • Taking the Mystery Out of Retirement Planning (also in Spanish)
  • Top 10 Ways to Prepare for Retirement (also in Spanish, Arabic, Simplified Chinese, Traditional Chinese, French, Haitian Creole, Korean, Polish, Portuguese, Russian, Tagalog, and Vietnamese)
  • Women and Retirement Savings (also in Spanish)

To view these publications, go to DOL's Saving Matters website . To order publications or request assistance from a benefits advisor, contact EBSA electronically or call toll free 866-444-3272.

Related materials available from the IRS

  • Lots of Benefits , Publication 4118, discusses the benefits of sponsoring and participating in a retirement plan (also available in Spanish, Korean, Vietnamese, Chinese, and Russian).
  • Have you had your Check-up this year? for Retirement Plans , Publication 3066, encourages employers to perform a periodic “check-up” of their retirement plans through the use of a checklist, and how to initiate any necessary corrective action.
  • 401(k) Plan Checklist , Publication 4531, a tool to help you keep your plan in compliance with many of the important tax rules.
  • Designated Roth Accounts under 401(k), 403(b), or governmental 457(b) plans , Publication 4530, discusses this popular feature found in many 401(k), 403(b), and governmental 457(b) plans.
  • Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) , Publication 560, describes types of plans, qualification rules, setting up a qualified plan, the minimum funding requirement, contributions, employer deduction, elective deferrals, the qualified Roth contribution program, distributions, prohibited transactions, and reporting requirements.

To view these related publications, go to the IRS's website .

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The best retirement plans of 2024

Maryalene LaPonsie

Hannah Alberstadt

Hannah Alberstadt

“Verified by an expert” means that this article has been thoroughly reviewed and evaluated for accuracy.

Updated 6:02 p.m. UTC Feb. 13, 2024

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American workers have no shortage of options for selecting the best retirement plan.

  • Most people are eligible for more than one retirement plan.
  • 2024 retirement plans generally offer tax advantages. 

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Retirement is the end goal for most workers, but you can’t quit your job unless you have a source of income. While Social Security will pay for some expenses, the government says these benefits will cover only about 40% of your pre-retirement income.

In the past, many companies offered pensions that provided lifetime income to loyal employees. Now, pensions have all but disappeared, and most workers need to rely on their savings to fill gaps in their budgets.

Fortunately, several retirement plans are available, many of which offer attractive tax incentives or generous employer matches.

Best retirement plans of 2024

“You’re talking about an embarrassment of riches,” says Andrew Meadows, senior vice president of HR, brand and culture for Ubiquity Retirement + Savings, a 401(k) provider.

Plans exist for employees, self-employed individuals and small-business owners. Options within each category allow people to receive immediate tax deductions or set aside money for tax-free withdrawals in the future. The best retirement plans also offer various investment options with low fees. 

Employer-sponsored retirement plans

Employer-sponsored retirement plans are some of the best-known options, and if you are an employee — meaning you receive a W-2 at tax time — you likely have access to one of them.

These accounts can be a convenient way to save for retirement since payroll deductions fund them. Plus, many employers match a portion of employee contributions.

“You want to be sure you put enough in to qualify for whatever your employer is matching,” says Stuart Chamberlin, founder and owner of advisory firm Chamberlin Financial in Boca Raton, Florida.

Traditional 401(k)

Traditional 401(k)s are the most common retirement plans private companies offer employees.

Employee contributions to a traditional 401(k) are tax-deductible. You can access the money without penalty once you reach age 59½, and withdrawals are taxed as regular income. You must start taking required minimum distributions at age 73, meaning you cannot avoid taxes forever.

You can contribute up to $23,000 to a 401(k) plan in 2024. Savers age 50 or older can contribute an additional $7,500.

Roth 401(k)

A Roth 401(k) works like a traditional 401(k), except the tax benefits are different.

Because Roth accounts are funded with after-tax dollars, employee contributions are not tax-deductible. The benefit is that the money grows tax-free and can be withdrawn tax-free in retirement. If you make a withdrawal before age 59½ and before you have held the account for five years, some of it may be subject to income tax and a penalty.

Roth 401(k) contribution limits are the same as traditional 401(k) contribution limits.

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A 403(b) , also known as a tax-sheltered annuity, works like a 401(k) and may be offered in traditional and Roth versions. Typically, 403(b) plans are available to employees of public schools and certain tax-exempt organizations.

One unique provision of 403(b) plans is that workers with at least 15 years of service can make additional catch-up contributions, which may be worth up to $3,000. 

457(b) 

Employees of state and local governments and certain tax-exempt nongovernmental entities may be able to contribute to 457(b) plans. These accounts work like 401(k)s and can be found in traditional and Roth varieties.

Like 403(b)s, 457(b)s have a unique catch-up feature. Workers may be able to contribute up to twice the annual employee limit during the last three years before their normal retirement age. 

Thrift savings plan

The thrift savings plan is a retirement plan for federal government employees and uniformed members of the armed forces. It is comparable to a 401(k) account, with similar provisions and contribution limits. 

Individual retirement plans

Individual retirement arrangements, or IRAs, “have the lowest barrier to entry,” Meadows says.

You generally can open an IRA as long as you have earned income, even if you have a 401(k) plan or another workplace retirement account. But note that income limits may apply to deducting traditional IRA contributions and contributing to Roth IRAs.

Traditional IRA

Like a traditional 401(k), a traditional IRA offers an immediate tax deduction on contributions. Withdrawals after age 59½ are subject to regular income tax. Early withdrawals are subject to income tax and a 10% penalty. Required minimum distributions must begin at age 73.

You can contribute up to $7,000 to IRAs in 2024. Savers age 50 or older may make an additional $1,000 in catch-up contributions.

Your contributions may not be tax-deductible if you or your spouse is covered by a retirement plan at work and you exceed certain income limits. For 2024, the ability to deduct contributions begins to phase out at modified adjusted gross incomes above $77,000 for single filers and $123,000 for married couples filing jointly.

Roth IRAs don’t offer tax deductions on contributions, but withdrawals in retirement are generally tax-free. Further, because you’ve already paid taxes on your Roth IRA contributions, you can withdraw them anytime tax- and penalty-free. Early withdrawals of your earnings may be subject to income tax and a 10% penalty. 

Roth IRAs share the same contribution limits as traditional IRAs, but high earners are excluded from funding these plans. For 2024, the ability to contribute to a Roth IRA begins to phase out at MAGIs of $146,000 for single filers and $230,000 for married couples filing jointly. At incomes of $161,000 and $240,000, respectively, the opportunity to contribute to a Roth IRA is eliminated.  

Spousal IRA

A spousal IRA refers to the ability of a working spouse to open an IRA on behalf of a nonworking spouse. In this way, stay-at-home parents or other spouses without earned income can have their own IRAs with which to save for retirement.

Spousal IRAs can be traditional or Roth accounts and are subject to the same contribution and income limits as other IRAs. To open a spousal IRA, a couple must file their tax return jointly.

Rollover IRA 

A rollover IRA is a way to move money from one retirement account to another. For example, if you leave a job, you can roll over money from your 401(k) to an IRA rather than leave it in place.

You can opt for a direct rollover or an indirect rollover. With a direct rollover, the funds are transferred from the 401(k) administrator to the IRA administrator. With an indirect rollover, you receive a distribution from the 401(k) and then deposit the funds into the IRA. If you fail to deposit the full amount into the IRA within 60 days, it may be subject to both income taxes and a 10% penalty.

There is no limit on how much you can roll over. Note that rolling over into an account with a different tax treatment — from a traditional to a Roth, for instance — counts as a conversion and has tax implications.

Retirement plans for small-business owners and the self-employed 

One drawback of IRAs compared to employer-sponsored retirement plans is the low annual contribution limit. But if you are self-employed or a small-business owner, you have other options with higher limits. Becoming eligible for these plans may be easier than you think.

“If you have a side hustle and self-employment income, you absolutely have the ability to start your own retirement plan,” says Nathan Boxx, director of retirement plan services for financial advisory firm Fort Pitt Capital Group in Pittsburgh.

Whether you work for yourself or have a team of employees, the following accounts could be good options. 

Any self-employed individual or employer can open a SEP IRA , and workers can contribute the lesser of 25% of their annual compensation or $69,000 per year. That puts a SEP IRA in line with a 401(k) plan in terms of contributions. But you can’t make catch-up contributions to a SEP account.

There is no Roth SEP IRA option, so your contributions will be tax-deductible. Withdrawals in retirement will be subject to regular income tax, and you’ll also need to start taking RMDs at age 73.

If you like the idea of having some tax-free money available in retirement, there is no reason you can’t also open a Roth IRA. The IRS allows self-employed workers and business owners to contribute to both.

The SIMPLE IRA is what Boxx calls the “quick and dirty” option for small-business retirement plans. It is available to businesses with fewer than 100 workers and has few filing requirements.

“The trade-off is lack of flexibility,” Boxx says. You may not have the same plan or investment options that other accounts offer. SIMPLE IRAs also have lower contribution limits than 401(k)s.

In 2024, a worker can contribute up to $16,000 to a SIMPLE IRA. Savers age 50 or older can make $3,500 in catch-up contributions. All contributions are tax-deductible, and withdrawals in retirement are taxed as regular income. RMDs must be taken starting at age 73. 

Payroll deduction IRA

Payroll deduction IRAs can be traditional or Roth and have the same contribution limits as those accounts. The main difference is they are funded through payroll deductions.

These accounts can be an attractive option for small-business owners who would like to help their workers save for retirement but don’t want the expense that comes with creating a 401(k) plan. 

Solo 401(k) 

Also known as one-participant 401(k)s, solo 401(k)s allow business owners with no employees or self-employed individuals to open an employer-sponsored plan for themselves and their spouses.

The reporting rules make these accounts more complex than some of the other options. On the other hand, they have significantly higher contribution limits.

As an employee, you can make elective deferrals of up to $23,000 in 2024. Savers age 50 or older can contribute an additional $7,500. In addition, as an employer, you can make a profit-sharing contribution of up to 25% of your compensation from the business. Combined, the maximum solo 401(k) contribution is $69,000 in 2024. 

Solo 401(k)s may be opened as traditional or Roth accounts.

Why is having a retirement plan important?

Most people understand the value of having money set aside for retirement, but it may not be obvious why you should use a retirement plan. After all, you could invest the money in a regular brokerage account , put it in certificates of deposit or leave it in your savings account.

A retirement plan makes more sense for several reasons:

  • Retirement plans offer tax incentives — either deductions for contributions or tax-free withdrawals in retirement.
  • Your employer may match a portion of your contributions. That’s essentially free money to boost your savings.
  • Retirement plans are subject to certain standards and protections by law.

“Retirement money is sheltered from creditors up to a certain threshold,” Boxx says. That is one example of the type of protection your money gets when deposited in a retirement plan.

How to start investing in your retirement

The earlier you begin saving, the more likely you are to be financially secure in retirement. It isn’t hard to open a retirement account either.

If you work somewhere that offers employer-sponsored retirement accounts, contact your human resources office to start making contributions. Most plans let you choose from several investment options, and many now have target-date funds, which make it simple to invest based on your expected retirement date.

IRAs and other plans can be opened online or in person at many banks and brokerage firms. For instance, Ubiquity Retirement + Savings offers solo 401(k) plans, while Chase, Charles Schwab and Fidelity all have IRAs.   

How to choose the best retirement plan for you

If you have an employer-sponsored plan with a match, start there. You want to contribute enough to that plan to get the full match. After that, you can consider other options.

Here are some questions to ask yourself:

  • Do I do any contract work that would make me eligible for a small-business retirement plan?
  • How much do I expect to be able to contribute each year?
  • Do I want a tax deduction now, or would I rather have tax-free money in retirement?

Before you jump into any account, be sure to read the fine print. “What fees are you paying?” Meadows asks. Those fees include the expense ratios for specific investments and the costs to administer the plan.

An accountant or financial advisor can help you weigh your options and select the best retirement plan for your needs. 

Frequently asked questions (FAQs)

That depends on your unique circumstances. While Fidelity Investments suggests you save 10 times your income by age 67, you may need more or less to retire comfortably.

When determining how much money you’ll need, consider the following:

  • Whether you will have debt payments in retirement.
  • The cost of living in your area.
  • Your expected lifestyle.
  • How you will fill your time.
  • Your expected lifespan.

Each account has its pros and cons. IRAs typically offer more investment options, but they may come with more fees. With a 401(k) account, you can contribute significantly more, and your plan administrator is a fiduciary, meaning they are required to work in your best interest. Talk to a trusted financial advisor to decide which is right for you. 

Yes. “The IRS always gets theirs at the end,” Chamberlin says.

The difference is when you pay those taxes. Roth accounts are taxed upfront since you fund them with after-tax dollars. With a traditional account, the money isn’t taxed until you make withdrawals in retirement. If you die with money in a traditional account, your heirs will pay the taxes on the remaining amount.

Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions. Past performance is not indicative of future results.

Blueprint has an advertiser disclosure policy . The opinions, analyses, reviews or recommendations expressed in this article are those of the Blueprint editorial staff alone. Blueprint adheres to strict editorial integrity standards. The information is accurate as of the publish date, but always check the provider’s website for the most current information.

Maryalene LaPonsie

Maryalene LaPonsie has been writing professionally for nearly 25 years and specializes in personal finance, retirement, investing and education topics. In addition to USA TODAY Blueprint, her work has been featured on Forbes Advisor, U.S. News & World Report, Money Talks News, MSN and elsewhere on the web.

Hannah Alberstadt is the deputy editor of investing and retirement at USA TODAY Blueprint. She was most recently a copy editor at The Hill and previously worked in the online legal and financial content spaces, including at Student Loan Hero and LendingTree. She holds bachelor's and master's degrees in English literature, as well as a J.D. Hannah devotes most of her free time to cat rescue.

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