5 Powerful Reasons Business Owners Should Establish a 401(k) Plan

Saving for retirement is a no-brainer – at least, it should be.

But for some business owners, creating a 401(k) plan is not on their “to-do list.”

We’ve worked with hundreds of business owners and seen countless times the value of offering a retirement plan – not just for your employees, but for you. There are probably some benefits you aren’t aware of, so let’s dive into why offering a 401(k) plan will benefit you.

1. Retirement saving and investing. 

This one seems obvious, but it’s worth mentioning.

Saving for retirement is an essential part of any Financial Life Plan. One of the most common ways–and first steps–is to contribute to your 401(k) plan. Studies suggest that you should save at least 15% of your gross earnings (depending upon life stage and goals) for retirement. The maximum contribution you can make in 2023 is $22,500, or $30,000 if you’re age 50 or older. You can choose if your contributions are either Pre-tax or Roth. Unlike IRAs, there are no income limits for Roth in a 401(k) plan, so even high-income earners have options.

When it comes to saving for retirement, the earlier, the better. For both you and your employees, the benefits of a 401(k) are unmatched when it comes to creating a strong plan for retirement

Read More: The Basics of Retirement Planning

2. Tax Planning

If you don’t currently offer a 401(k) plan, you might be missing out on some significant tax benefits.

Many small business owners overpay on their income taxes, but a properly designed 401(k) retirement plan can help you save money on taxes. Business owners get tax deductions for their pre-tax contributions, employer matching contributions, as well as plan expenses. Some of our clients choose to utilize al Profit-Sharing option in their plan. 

Profit Sharing is a way to save up to $66,000 ($73,500 for those 50+) inside a properly designed 40(k) plan. The tax savings on that amount can be more than the contributions for employees. This means some of the money you were going to pay to the government in income taxes goes to your employees instead.  Win / Win! 

Let us help you determine if Profit Sharing is a good option for you based on your team’s specific demographics. A fiduciary like Triune will work closely with your CPA and a Third Party Administrator (TPA) to determine the right amount for you to put into a Profit-Sharing plan and maximize benefits.

You might be wondering the value of redirecting some of this money to your employees, and this leads directly into our next three points: Recruit, Reward, Retain. 

3. Recruit

Offering a retirement plan option to your employees is a significant component of the total compensation package. In fact, many employees look for this specifically when seeking work. 

So it’s become increasingly mainstream to offer a 401(k) plan with a robust matching formula. This can be used as a recruiting tool–and for smart business owners, marketing matching benefits is a key part of their recruiting strategy.  Discretionary Profit-Sharing on top of matching, tied to a 6-year graded vesting schedule, can be the cherry on top!

4. Reward

Rewarding your employees is a key way to ensure their dedication to your business goals–and we’re not talking about pizza parties or “Casual Fridays.” Many employers choose to offer a 401(k) match to their employees, and some make a Profit-Sharing contribution at the end of the year. Some of our clients do this every year, while others choose to only enact Profit-Sharing if they have a really good year in business. 

Creating targets that everyone can work toward together–and then rewarding your team for hitting them–is not just a great way to reward your employees, but to build a culture of team players.

5. Retain

By regularly rewarding your employees with meaningful incentives, you’ll retain them for longer than the average business owner.

Retaining employees longer than a year or two is challenging in this market. But most companies don’t offer a Profit-Sharing incentives–so this can make you stand out as an employer.

Of course, you’ll need to communicate the true value of what you’re offering to your team. If one of your 26-year-old employees gets an extra $2,500 into their 401(k) because everyone hit their targets and the company increased revenue, that could be worth up to 10X that amount by the time they retire.

Read More: Why You Need a Second Opinion Service For Your 401(k) Plan

Conclusion

If you’re a business owner ready to offer a 401(k) plan, please reach out to learn more about working with Triune. Many financial advising firms don’t have the capacity to personalize 401(k) plans and Profit-Sharing. We work closely with all our clients to custom design 401(k) plans specific to their needs. We would be honored to visit with you about your situation.

ABOUT TRIUNE FINANCIAL PARTNERS

Triune Financial Partners is committed to empowering people with life-changing financial counsel. Triune is an independent firm that values clarity, simplicity, and transparency. We're a fiduciary, which means we always put our clients' interests first. In addition to Financial Life Planning for individuals and families, we also serve 100+ businesses, churches and nonprofits to craft powerful 401(k) and 403(b) plans for their organizations. Whether you're working with one of our Financial Life Planners or setting up a 401(k) plan for your organization, Triune is here to help you thrive financially.

Interested in working with us? Get in touch here.