How to set up a 401k - for beginners

HOW TO SET UP A 401khow to set up a 401k

Step 1 - Decide what type of plan you are looking for - Best Retirement plans for Small Business Owners

Step 2 - Get Plan Documents Drafted - (You'll need a TPA to do that for you - that's us!)

Step 3 - Choose your other providers - like the investment custodian (where the money will be held), and an investment advisor.

Step 3 - Sign Plan Documents

Step 4 - Get employees enrolled and start making contributions

Step 5 - Maintain the plan (we'll help you do that!)

If you've been paying attention, the retirement industry has been getting a lot of news time. Those over age 65 and those with disabilities receive some coverage under Social Security.  The rest of us have to pay for our retirement ourselves.  Sure there is still a small percentage of people who retire with a pension, but that percentage shrinks every year.  Even government employees are facing the risk of shrinking or “restructured” retirement pensions.

The vast majority of Americans have an individual mandate to save for their own retirement.  It’s not a law, but it’s common sense.  If we don’t keep the private, employer-sponsored retirement plan system strong and vibrant we run the risk that employees will not have enough money to retire.  If enough employees become a burden on the social safety nets we may run the risk that the U. S. Congress will decide that they have a better solution than our current system. As employers or business owners, it is important that we provide a savings vehicle for our employees, so they can take an active role in their retirement outcome.New Call-to-Action

Business owners – A variety of qualified retirement plans are available for business owners (see our blog on Best Retirement Plans for Small Business Owners for more details or view the infographic here):

  • Savings Incentive Match Plans for Employees (SIMPLE-IRA) allows for employees to save from their paychecks up to $11,500.  A small employer contribution of either 2% of pay to all eligible employees or a matching contribution equal to 3% of pay is required.
  • 401(k) plans are by far the most popular for American companies.  The 401(k) allows for employees to save from their paychecks up to $18,000 either pre-tax or after-tax (Roth) may be made available.  The employer may choose a matching contribution formula that fits its budget or make profit sharing contributions.  Employer contributions may be subject to a vesting schedule.  Employee and employer contributions can be as much as $53,000 per person per year.
  • Pension plans are finding new popularity among small professional businesses with steady cash flow.  Defined Benefit and Cash Balance plans typically allow for larger contributions than 401(k) plans – sometimes up to $150,000 per year.
  • Employee Stock Ownership Plans allow a vehicle for business owners to sell their company stock to the employees.  The company makes tax-deductible contributions to the ESOP, and the ESOP uses the cash to buy shares on behalf of the Plan participants.
  • Construction companies that work on Prevailing Wage jobs can use the fringe benefit component to help their employees save for retirement by sending some of the benefits dollars to the company’s 401(k) plan on behalf of the employees.
  • Non-profit organizations can offer retirement plans too including:
    • 403(b) plans which are similar to 401(k) plans
    • 457(b) plans allow for employee and/or employer contributions for key employees.

If you're an employer who doesn’t have a plan available, it's easy to put one in place.  It is up to each of us to save for our own retirement, but we as employers need to provide a vehicle for people to do that. Let’s join together to keep the private employer-sponsored retirement system strong and prove to Congress that we don’t need them to tell us how or what to do. The best part is, you don't even need to know how to set up a 401k, that's what we are for. We'll guide you every step of the way.

Give us a call to get started!

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