How to Start a 401k for Your Small Business

About the Author

jonathon matson

true Jonathon Matson, CRPS®

Retirement Plan Service Manager
Phoenix–Biltmore, Arizona

Learn the essential steps to set up a 401(k) for your small business. From plan design to provider selection, discover how to create a retirement plan that may benefit your company and employees.

How to Start a 401(k) for Your Small Business

As a small business owner, offering a 401(k) plan to your employees can be a game-changer. Not only could it help attract and retain top talent, but it may also provide valuable tax benefits for both you and your staff.

Designing Your Plan

The first step in setting up a 401(k) is to design your plan. You should look for a small business financial advisor who specializes in the 401(k) space to help guide you through this process. Work with them to weigh the features and provisions you want to include in your plan. At this point, a third-party administrator (TPA) comes in to help you build a plan that can meet your needs. Think of the TPA as a CPA for your retirement plan: they’ll create and design the retirement plan documents, ensure compliance with IRS requirements, and prepare the necessary annual returns and reports.

The next step is to find a recordkeeper who will keep track of who’s in the plan, what investments they have, and what money is going in and out. The recordkeeper is also typically responsible for the website that employees use to access their 401(k) details. You may be able to find a bundled provider, someone who acts as both a TPA and record keeper.

Choosing the Right Provider

When choosing a 401(k) provider, look for one that offers strong administrative support. As a small business owner, you're likely wearing many hats, so finding a user-friendly platform with responsive customer support can streamline day-to-day operations. Consider the investment options available as well. Some providers, particularly on the insurance side, may require the use of proprietary investment options. However, an open architecture platform will give you access to a wider range of investment choices.

Costs are another important factor to consider. Pricing can vary depending on the number of participants, annual contributions, rollovers, and additional services. On average, expect to invest around $3,000 to $5,000 to get started. Keep in mind that there are tax breaks available, such as credits for administrative costs or contributions, so be sure to talk to your CPA to see if you qualify.

Customizing Your Plan

Customizing your 401(k) plan can make it more attractive to employees while still being cost-effective for your business. As a business owner, you can join your employees in using the plan as a vehicle to save for your own retirement.

While there will be some inherent costs to provide a meaningful benefit to your employees, this is where a customized plan that grows with your business becomes attractive for both parties. Employees will receive company contributions in the form of a match or profit-sharing as the business becomes more successful. There's a lot of flexibility in these plans that can benefit both owners and employees.

By designing your plan carefully, choosing the right provider, and customizing it to fit your needs, you can create a valuable situation for everyone involved. If you have any questions about starting a 401(k) for your small business, don't hesitate to reach out to a financial advisor who specializes in this area.



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