If you are in start-up mode for your company, the last issue at the forefront of your mind may be looking into a 401K plan as a benefit for your employees as you grow your business. Your employees are likely younger, willing to take more risk for the potential of reward, and interested in compensation in the form of stock options, commissions, or other types of short-term, growth-related revenue. Your focus is on how to keep your company profitable, or in the case of venture funding, how to establish your business and achieve positive results in the short-term.
However, if you’re not considering a 401K plan as part of your benefits package, you should be. Why? The positives of offering a 401K far exceed any perceived drawbacks. Below are four reasons why your startup will thrive by offering a 401K plan, and how we at Richard Brothers can help:
A 401K Plan Attracts and Retains Great Employees
Every business owner — especially a startup entrepreneur — knows how critical it is to attract the right talent to move a company toward growth and success.
In today’s climate of uncertainty around Social Security and the eradication of pension plans, employees — no matter how young — want to invest not only their present career, but also their future. The best employees want to know that they are engaged in a company that shares their lifelong goals. By offering a 401K plan for your employees, you are providing a benefit that is much more long-lasting than free lunches, a ping pong table, or an on-site gym — you are stating that you want the best for your employees over the long-term.
A 401K Plan is a Competitive Offering
Five out of six small companies do not offer a 401K plan for their employees. Yet, a recent study by Charles Schwab showed that nine out of ten employees consider a 401K a must-have benefit. And, if you happen to be in a highly competitive marketplace, more than likely your competitors are already offering a 401K as part of their benefits package. By offering a 401K plan, you can differentiate yourself from other start-up employers, or simply keep up with your competition by offering this benefit that so many employees have come to regard as part of their employment package.
Today's 401K Plan for Startups are Flexible and Affordable
A common misconception about 401K plans for small companies is that the cost of managing a plan is cost-prohibitive. In fact, there are many low-cost providers for 401K plans for small businesses. If your business employs 10 employees or less, for example, the administrative costs generally run between $80 and $100 per month. In addition, you can offer a 401K plan without matching the funds paid in by your employees. Most employers, however, match up to 50% of the first 6 percent that their employees contribute. Regardless, your employees can reap many rewards from a plan — regardless of whether you match their contributions.
Startup businesses may be eligible to receive a tax credit for a percentage of their start-up costs for each of the first 3 years of the plan. A tax credit reduces the amount of taxes you may owe on a dollar-for-dollar basis. This is a significant incentive for companies to start either a SEP, SIMPLE, or Qualified Plan. For more information about retirement plans startup costs tax credit, click here.
No Business is Too Small for a 401K Plan
The reality is that a business of any size — even a startup — is large enough to realize a high ROI by implementing a 401K plan. A 401K plan offers your employees the ability to withhold from their paycheck a certain amount of funds, tax-free toward their retirement. In addition, there are early withdrawal options, depending on your employees’ circumstances. The set-up costs for you are minimal, considering other costs of running your business. Investing in a 401K plan is the equivalent of investing in the future success of your company.
If you are ready to incorporate a 401K plan to your startup benefits package, contact us at Richard Brothers. We will work with you to implement the best 401K plan for both you and your employees. In addition, we will help your employees map out their future retirement goals through individualized FutureFinancial Maps.
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