Types of 401k Plans for Small Businesses

I know about the traditional 401k plan. Are there other kinds I can choose for my small business? – Della Freeman, Texas

There are actually three kinds of 401k plans you can choose from if you want to set up a retirement plan for your small business. Here’s a brief overview of your options:

The traditional 401k is the most flexible among the three without doubt. As the employer, you choose if you want to make contributions towards every employee or match employee contributions. You can have a clause in your traditional 401k plan outline describing the vesting schedule you want for the contributions. Overall, this plan gives you much more control than the other two over how you and your employees make contributions.

A safe harbor 401k is the second type of retirement plan you can choose for your small business. Employer contributions are mandatory with these plans. You have to put in a certain level of contribution towards these plans for your employees. There is a variant of this plan you can opt for- the DASH or double advantage safe harbor 401k. With this plan, you add a profit sharing plan to your 401k that makes it interesting for your employee. The bigger tax benefits make it attractive for your business.

An automatic enrollment 401k is the third option you can choose. Every employee is automatically a participant in the plan and deductions are made directly from his/her paycheck every month and go right away into the 401k. You select default investments for your employees. But, you have the liberty to change the preferences if you so choose. This gives you enough flexibility with your contribution to ensure continued participation.

If you already have a 401k in place you can simply switch to one of these options by making use of a 401k software suite like the one offered by http://401k-easy-online.com/. With this kind of package you can take care of all the administration and tracking that is needed to be done with 401ks easily and quickly.

Avoiding Middlemen in your 401k Plan

Is there any way in which I can interact directly with mutual fund companies when I or my employees want to invest 401k funds in these investment products? I would like to avoid paying charges to any third parties and keep my 401k plan affordable.- James J. Silver, runs a interior decoration business in Madison, WI 53703.

Yes, you can set up a 401k plan that lets you interact directly with mutual fund companies when you want to add these investment products to your plan. There are a number of run- it- yourself 401k plans on the internet that let you do this. By choosing a tried and tested plan like the one offered by http://401k-easy.com/, you can make plan administration easy and quick and also avoid paying charges and fees to middle men.

Administration of these DIY 401k plans is quite easy once you take a look at the demo offered by the provider. You can actually set up the plan and have it ready to go without having to hire outside help. Once your plan is up and running, it takes just about 15 minutes for you to update records each month. Make sure that you choose a DIY 401k plan that you can customize to your specific needs. This will let you choose the investments that your employees and you are most likely to use. It will also give you the greatest flexibility in terms of making changes at a future date if the need arises.

The best part about such DIY software suites is that they are very cost effective when compared with the plans that large providers establish and administer for you. You can literally save thousands of dollars every year with these easy to use plans because there is no administration fees involved when you manage the plan on your own. Try out a free download of the software suite before you sign up to ensure that you can follow the instructions and manage the plan easily.

Why Set Up 401k Plans?

Why should I choose a 401k plan for my graphics design business? My employees can save with IRAs or other savings schemes. – Elizabeth R. Halliway, Stevens Point, WI 54481

The 401k plan became a very popular way for businesses to help employees save for their future once the changes outlined in the EGTRRA came into force in 2001. Since then this retirement saving plan has become particularly popular among small businesses. Businesses owners who have this plan give their employees a simple, effective and tax advantaged means of making sure of a financially secure retired life. This makes them great employers to work for. Result- the business can attract the best of the talent in the market. This is also one of the simple ways in which businesses make sure that good employees stay with them and don’t get lured away by bigger or better paying competitors.

While your employees can definitely save in other ways including IRAs, the 401k plan gives them some special benefits that no others do. One of the most attractive aspects of the 401k plan is that your employee’s contribution comes out of pre- tax dollars. Every month, his taxable income is reduced to the extent that he contributes to his 401 plan. This means that he cuts down his tax bill too. When he withdraws from his 401k account post- retirement he pays tax at the lower tax rate that he then falls within.

If you are setting up a 401k plan using a DIY software suite like http://401keasy.com/, you give your employees a great deal of control over their retirement savings too. They have the flexibility to choose their preferred investments out of a comprehensive range of options. This lets different employees invest in different avenues in line with their risk appetite and returns expectations. Since they can easily track the status of their 401k account, employees find it immensely convenient when you establish such a DIY 401k plan for your business too.

Single Participant 401k Plans for CPAs

I have my own CPA business and I do not employ anyone else at present. Why is a 401k a better plan for me than the other retirement benefit plans? What is the easiest and cheapest way to establish a 401k plan that I can manage easily month after month?- Andy Hart, Charleston, South Carolina.

The government has made it easy for small business owners to save for their retirement by allowing some significantly large contributions to be made to their 401k plans. For single participant 401ks, the contributions are much higher than what you can make to other retirement benefit plans. Catch up provisions make it possible for those who are starting late to set aside a comfortable sum for their golden years. For your single person CPA business you can definitely set up a 401k plan and you can even recommend it to your owner only business clients.

The easiest way to set up a 401k plan for your business is to go for a ready to use software suite like the one offered by http://low-cost-401k.com/. These plans are designed to be user friendly so that setting up a brand new plan should not take much time or effort. If you are still not very confident about setting up the plan on your own, then choose a DIY suite like this one that offers a demo. Once you have looked through the demo, establishing your plan should not pose any problem at all.

Since you do not have to hire a plan administrator for such DIY 401k plans, these are also cost effective options for your business. These plans give you a range of investment options, the flexibility to customize your plan and complete control over the plan at a fraction of the cost you would pay to a third party to setup and manage your plan.

Why Establish 401k Plans

I am setting up my own small home furnishing business for which I aim to hire about 10 employees. My business consultant tells me that establishing a 401k plan for my employees is a good idea. Why should I set up a 401k plan and how do I benefit from it-? Arnold P. Vaughn,
Sacramento, CA 95814

Arnold, your business consultant is perfectly right. Setting up a 401k plan for your home furnishing business is definitely a great idea especially in this post recession economic climate where people are quite keen on saving for the future. A 401k plan for your employees gives them the opportunity to save in a very effective way for their retirement years. Plus, there are some distinct advantages of saving with these plans. Two of the key aspects that make 401ks so attractive to employees are: tax benefits and employer contributions.

The contributions to the employee’s 401k are taken from his pre- tax dollars. This means that he ends up with lesser taxable earnings every year. The funds he has saved through his 401k plan are taxed only when he withdraws them, at which point he may fall in a lower tax bracket.

The fact that many employers make matching contributions to the employee’s 401k plan make these plans very attractive indeed. For the employee, the employer’s contribution is free money that lets him attain his retirement savings goal much faster.

For you, the employer, setting up a 401k plan is a great way to attract the most talented professionals in the market to your company, ensure their loyalty to the company and keep them motivated to put in their best for you. In addition, you get some tax benefits for the 401k contributions you make on behalf of employees. Given that setting up a 401k plan has become a simple and speedy process, thanks to DIY suites like http://401keasy.com, there is no reason for you to not have one for your small business employees.

401k Plans for a One Person Company

I run a graphics design business where I am the only employee as of now. Can I set up a 401k plan for my business that I can contribute to? Will I get the tax advantages that regular employees do with their employer sponsored 401k plans? Chan Chung, Bronx, NY 10467

Yes, you can set up a 401k plan for your one person business just like any other business owner can for the benefit of his employees. There is a specific version of the 401k plan that is designed to help small business owners like you save for their retired life. Until the year 2002, it was not possible for a one person business to have a 401k plan for its own but this is not so anymore.

You will find this plan under different names, for example, the http://smallbusiness401k.com calls it the Small Business 401k for One. Under this plan, you can open a 401k account for your owner only business. Businesses that only have employees who do not qualify for the plan or businesses in which the only employee other than the owner is his/ her spouse can also choose this plan.

These plans offer all the benefits that you would stand to get from a regular employer sponsored plan including the possibility of loans from the account. You can choose from a wide range of investment products for this account so that you can diversify your plan assets adequately. In addition, if at some time in the future you decide to expand, you can easily convert the plan into a multi participant plan as well. The contributions you make into your one person plan are made from pre- tax dollars so you get significant tax advantages from setting up this plan.

Choosing a One Man 401k Plan

I run a plumbing business where I am the owner- employee. I don’t employ any others as of now for my business. Can I set up a 401k plan for myself online? What should I look for in such a plan? Sidney B. Daniels, New York

Until as recently as the year 2002, it would not have been possible for you have a 401k account for your business unless you had more employees. But now you can definitely set up a one man 401k plan for yourself without needing multiple plan participants. This plan is the perfect one for small business owners who do not employ others. You can even have this plan if you employ just your spouse in your business.

The easiest way to set up a one man 401k plan is to go with a ready to use suite like http://small401k.com. There are a few points to consider before you decide on the 401k suite you want to sign up for. The most important point is that the suite should have a good choice of investments on offer. This will ensure that you can invest your 401 funds in avenues that give you the best returns with least risk.

The cost of the plan is another point to think about. Comparing DIY suites on different sites will tell you if the one you are looking to sign up for is really competitively priced. The suite should be easy to manage and administer so that you do not end up spending hours of your time every month keeping the account up to date. A good way to test out a 401k suite is to try a free demo. This hands on experience with the package is the best way for you evaluate if it is indeed the right one for you.