The Small Business 401(k) is the Holiday Gift That Keeps on Giving

Eagle with flag in background.
Image via Wikipedia

Business owners understand that they cannot rely on the government for their retirement. A 401(k) plan can not only help them save for their retirement but also help attract and retain talented employees.

The Benefit That Keeps on Giving and Can Pay for Itself

There’s no doubt about it, giving each of your employees a fat check around the holidays would feel great. But, in the long-term, giving them free money every two weeks — via matching contributions to their 401(k) — can actually work out even better for both you and your employees.  And, for smaller firms, the plan may actually pay for itself outright.

Here’s how 401(k) saving and tax advantages can really add-up.  Consider a scenario of two businesses. Each has seven employees including the owner, and the owner earns $150,000 a year.  One offers a 401(k) plan with a “safe harbor” match to maximize her contributions and one does not provide a retirement plan at all.

So which owner keeps more of her money? In this situation, the owner with the 401(k) is much better off than the owner without a plan.  The owner with a 401(k):

  • Keeps  $2,729 more of her own money
  • Pays $7,465 less in personal and business  taxes
  • Saves $22,087 in tax-deferred income for retirement

That’s just year one. Take a ten year view, and the numbers get even more exciting.  The owner saves nearly $75,000 in taxes and builds a nest egg $305,000 assuming a seven percent annual return over the period.  Tax credits, deductions of any match and plan expenses, and matching can all have powerful effects on your bottom line.

Small business 401(k)s are in everyone’s best interest and bottom line. Now that’s a concept that even Scrooge could love.

There is a human tendency to believe when times are good they will always be good. And when times are bad they will always be bad. This is not the case, the economy and the world will get better. Now is the time to begin a retirement plan for yourself and your employees. It will pay dividends for you very soon.

Please comment or call to discuss how this affects you.

  • Your Employees Appreciate Your Company’s 401(k) Plan (
  • An Employer’s Guide in Choosing which Retirement Plan to set up (
  • A Solo 401(k) Plan Can Cut Your 2011 Tax Bill by $9,800. But Need to Act Soon. (
Enhanced by Zemanta

Leave a Reply

Your email address will not be published. Required fields are marked *