Tax Advantage of 401k Plans

I run a quite successful burger joint and employ around 20 people. Does having a 401k Plan for my employees really give my business a tax advantage? Please advise. – Jack McAdams, Restaurant Owner, Phoenix

401k plans aren’t just a wonderful opportunity for the employees of a business to save for their retired lives. They also let the business owner save money by offering many tax advantages. Otherwise, few business would be encouraged to set up a 401k plan for their employees, let alone make contributions to match theirs!

The tax benefits you get from setting up and managing a 401k plan for your small business employees can have a significant positive impact on your total payables to the IRS. There are two distinct advantages to consider. First, your business’ first 401k plan gets a $500 IRS tax credit every year for three years if you employ less than 100 people and have costs over $1000. Second, any contributions that you make to your employee plans are deductible for your business. Deductible employer contributions include both employee contribution matching as well as profit sharing contributions.

If your business employs only you and your spouse then you may qualify for tax deferred contributions. That means your contributions are not taxed when you make them but only when you withdraw them from the plan. Best part is, this means that your taxable income is reduced by the chunk of your paycheck that you pay into your 401k. Tax savings plus secure finances for your retirement- isn’t that a great combination?

If doubts about the tax advantage have been keeping you from setting up a 401k plan for your small business, then you have been missing out on a great tax saving tool. Sign up with a 401K plan center like and you will have your own retirement planning account set up in no time at all so that you can start saving money right away.

About Elliot Earl, Director, Pension Trade Association
Director, Pension Trade Association Founded in 1982, the Pension Trade Association [California Domestic Nonprofit Corporation #C1629080] is dedicated to helping workers save for their retirement through expanded coverage of 401k -type defined contribution pension plans.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: