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Demystifying the 401(k)

A Small Business Owner's Guide to Retirement Benefits


As a small to mid-sized business owner, you know the importance of attracting and retaining top talent. It's a challenge for most of us business owners right now. Unemployment reports tell us almost everyone is working so the pool of "qualified" candidates is small to non-existent. It does depend on the job type and industry. If you need help with something that can be done remotely in a few hours a day where it's more task or project-oriented; bingo, you're probably not having a problem at all. Does that mean it's doom and gloom for service-related industries that require you to show up in the office or place of business? Of course not, but it does mean that you may have to think about more than just a competitive wage.  


One powerful tool in your arsenal: a retirement plan. That's a pretty broad category because there are tons of plans depending on what you're looking for. Most people think 401(k) by default and although it's certainly not the only option, it's the one we'll focus on for this article. Now that we've narrowed down the type of plan you might want to offer your team, let's be honest, staring down the barrel of starting one can feel daunting. Multiple systems, complex regulations, and endless choices – it's enough to make you reach for the nearest cold brew.


Fear not, fellow entrepreneur! While navigating the 401(k) landscape has its intricacies, understanding the basics is key. So, let's break it down:


The Nuts and Bolts:


  • Startup Deadlines: Deadlines exist for establishing a plan and notifying employees. Don't miss these crucial dates! The majority of plans we set up are safe harbor plans so the deadline for the plan launch is October 1st. That doesn't mean that you wait until October 1st to start the plan design. You'll want to give yourself about 60 days prior to plan launch so sometime in August will be the latest you have to start a plan in that given tax year.

  • Contribution Limits: There are limits on employee and employer contributions, so understanding these is essential. This is a moving target that changes just about every year. At the time of writing this blog, contribution limits are set to $23,000 for participant contributions and an additional $7,500 if they are age 50+ for 2024.

  • Tax Credits: Offering a 401(k) can earn you valuable tax credits, boosting your bottom line. Those might include the startup costs for education as well as plan administration. There may be additional incentives if you utilize an auto-enrollment feature. You'll want to work closely with your advisor and your CPA to maximize all the tax credits, deductions, or savings you're eligible for.

  • Attracting Talent: In today's competitive market, a 401(k) is a major perk for potential hires. People are becoming more and more educated about ways they can or should be saving towards retirement. This is so important because the days of having that old Kodak or GM pension to help supplement you in retirement are long gone.

  • Retaining Talent: Happy employees with a secure retirement future are more likely to stick around. Who doesn't love more money today? You'd be surprised to learn that more and more job seekers care about the perks an employer can offer.



Taming the Complexity:

Yes, it can feel overwhelming when you think about all the moving parts that go into a retirement plan. Payroll, plan providers, accountants, financial advisors – it's a symphony of players. Because of all the intricate details and moving parts, many shy away from it altogether to avoid all the time and headaches they might encounter. Here's where your hero, the financial advisor, enters:


The Financial Advisor: Your 401(k) Maestro:

Think of your financial advisor as the conductor, orchestrating the various systems and ensuring everything runs smoothly. They handle:


  • Plan Servicing: They file paperwork, maintain compliance, and manage plan administration.

  • Education: They educate you and your employees on the plan's features and benefits. The last thing you want to do as a business owner is give investment advice or field questions about stock market performance or lack thereof.

  • Participant Guidance: They help employees set up and manage their accounts, understand investment options, and make informed decisions. A good investment firm will give participants access to additional meetings in the office, on the phone, or via video chat. We offer all three.


Important Note: While advisors play a crucial role, they do not manage individual investment accounts. That power lies solely with each participant.


Embrace the Advantage:

Investing in a 401(k) plan is an investment in your business and your people. It shows you care about their future, fosters loyalty, and attracts top talent. Believe me when I say this, it works! Remember, you don't have to go it alone. Partner with a financial advisor to navigate the complexities and unlock the full potential of your 401(k) plan. We're here for you.


Ready to take the first step? Talk to a financial advisor today and turn your 401(k) dream into a reality. Remember, a secure retirement future for your employees means a brighter future for your business.



If you haven't checked out my PennyWise Financial Podcast, watch a look at a clip featuring guest Kevin Johnson, Esq from Klafehn, Heise & Johnson P.L.L.C. in Brockport, NY. Scroll down a little past the clip to watch the entire episode. It's available on all major podcast platforms like Apple Podcasts, Youtube Music, Spotify, Amazon Music and YouTube.




👇Or click below to watch the full Episode



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