401(k) 101 For Business Owners

If you’re a business owner, you know how hard it is to keep up with all aspects of your business. You have to manage your employees, ensure the product is coming in on schedule, and keep track of all the different projects you’re working on. In addition, then there’s the day-to-day work of running your business-managing your employees’ paychecks, paying bills and taxes, and keeping track of inventory. The list goes on and on!

However, if you’re like most business owners, you don’t have time to take care of your retirement savings on your own. That’s where a 401(k) plan comes in—they make managing these savings easy! Many business owners choose to offer 401(k) plans to their employees without considering the intricacies. Many resources are available to help you understand 401(k) plans, but they aren’t always easy to understand. This guide is designed to help business owners better understand how 401(k) plans operate, including the main benefits offered by this type of retirement account.

Why Should My Company Offer A 401(k) Plan?

If you’re a business owner, you may be wondering what a 401(k) is and how it can benefit your company. A 401(k) is an employee benefit plan that allows employees to save money for retirement. When you contribute money to a 401(k), it’s usually taken out of your paycheck before taxes are calculated. This means that the amount of money actually deposited into your account is lower than the amount of money being withheld from your paycheck.

While there are many different types of 401(k) plans, the most common type is called a defined contribution plan. In this type of plan, you choose how much money you want to contribute to the plan each year—and how much will be deducted from each paycheck. Then, when employees reach the retirement age of roughly 60, they can begin withdrawing funds from their accounts without incurring penalties or taxes on those withdrawals (unless they withdraw more than they’ve contributed).

How Does A 401(k) Work?

You set up an employee contribution plan with the financial institution that manages your company’s 401(k) plan, typically called an “investment manager.” The employee contribution plan will tell them how much money to take out of each paycheck and put in their account each month.

The investment manager will then invest that money for you based on certain parameters set by you and/or your company, such as what kind of investments to make. They’ll then give you periodic reports about how much money has been contributed.

Types Of 401(k)Plans

Traditional: This option allows you to deduct contributions from your taxable income, which means that your contributions will lower your overall tax bill at the end of the year. Traditional funds can also be rolled over into an IRA when you retire or leave your job.

Roth: With this option, you pay taxes now but can withdraw funds tax-free when you retire or leave your job. You cannot roll over Roth funds into an IRA once they’ve been deposited into the account; however, there are some exceptions based on age and other factors.

Profit sharing plans: These are plans where the employer contributes a set percentage of its profits into each employee’s 401(k) account on an annual basis, usually four or five percent. The employee doesn’t get to choose how much money goes into their own account; instead, they take home whatever amount is left over after all contributions have been made by the employer and employee combined together.

Defined contribution plan: This is the most common type of 401(k) plan. The employer decides how much money to contribute, and each employee can also choose to make voluntary contributions.

Defined benefit plan: In this type of plan, the employer agrees to pay a specific amount of money to the employee at retirement based on their number of years of employment, salary level, and other factors. The amount that an employee receives from a defined benefit plan will depend on their age and salary at retirement.

How Do I Choose The Right Plan?

401(k) plans are an important option for business owners, but they can also be very confusing. There are many different types of 401(k) plans, and each one has its own set of rules and requirements. If you’re a business owner and you want to start offering a 401(k) plan for your employees, it’s important to choose the right one. Here are some tips on how to do that:

1. Find out if your state requires a certain type of 401(k) plan. If it does, then you’ll need to make sure that the plan you choose matches those requirements. Otherwise, your employees won’t be able to participate in the plan if it doesn’t meet state standards. You can find out what types of plans are available in your state by contacting your local Department of Labor or Small Business Administration office.
2. Make sure that any fees associated with managing your 401(k) plan are reasonable compared with other plans offered by other companies in your area (or even across state lines). If not, then look into other options until you find something more affordable for you and your employees!
3. Make sure that the investment options available through this plan will allow you to grow your money without risking too much—but also without taking too much risk!

How Do I Start?

401(k) plans are an important part of ensuring your workers have a secure retirement. They’re also a great way to attract and retain talented employees. Below is a step-by-step guide to getting started:

• Start by contacting a broker or financial advisor for help setting up the plan. They can help you determine what kind of plan is best for your company, including whether or not you should include matching contributions. You may even choose to work with a professional employer organization (PEO) to handle all of these logistics for you.
• Next, determine how much money you want to contribute to the plan each year. You can decide on any amount, but it’s recommended that you contribute at least enough so that each employee receives at least three percent of their annual salary as a contribution from their employer.
• The next step is to determine whether or not you want employees to be able to contribute on their own. If so, make sure they understand the limits that apply and how much they can contribute without penalty (in most cases, it’s $18,500).
• Finally, decide how much money will be taken out of each paycheck towards paying into the plan each month, quarter, and/or year, depending on what works best for your company’s budgeting cycle.

During this process, you need to decide whether or not to hire a professional employer organization (PEO). A PEO will take care of many of the administrative tasks involved in setting up and managing a 401(k) plan for you—including payroll processing, tax filing, and benefits administration—so that you can focus on running your company.

Let’s Talk About Your 401(k) Options

Introducing 401(k) plans to your employees can be one of the best decisions you make as a business owner. Not only is it a great benefit for your employees, but it’s also an excellent way to attract new talent and keep your existing team happy.

But if you’re unsure how to get started, we’re here to help!

GMS offers a variety of 401(k) plans that are customizable and easy to use. We’ve been helping small businesses similar to yours get their feet wet with this exciting new benefit for years, and we’d love to help you, too. Contact us today!