Five reasons your small business may need a retirement plan
With new laws, growing employee expectations, and valuable tax incentives, we'll explore five reasons a retirement plan may make sense for your small business and compare common plan options to help you find the right fit.
If you've been on the fence about offering a retirement plan, now may be the time to take a closer look. Between new laws, rising employee expectations, and tax incentives, retirement plans are becoming more of a necessity than a nice-to-have benefit. Consider how offering a retirement plan may help your small business.
1 Attract top talent—Retirement benefits may be essential for attracting and keeping your employees. In fact, 85% of workers expect their employer to offer retirement benefits, and 89% would be more likely to stay with their employer when they’re offered.
2 Help your employees prepare for longevity—Americans are living longer and often retiring earlier than planned, leaving fewer years to save and more years to fund in retirement. Offering a retirement plan with automatic enrollment, payroll deductions, and employer matches may make it easier for your employees to prepare for a longer and better life.
3 Meet new state mandates—At least 48 states have adopted or are considering retirement savings mandates to help expand access to workplace savings plans. If your business is subject to these requirements, you may be able to choose between a state-run program or an alternative such as a 401(k), SEP IRA, or SIMPLE IRA. Understanding your options can help you select a plan that aligns with your employees' needs, business goals, and budget.
4 Take advantage of tax breaks—Federal legislation, such as the SECURE Act 2.0, has increased the amount of tax credits available to small businesses that offer a qualified retirement plan. For example, you may be eligible to receive a tax credit of up to $5,000 annually for three years to help offset the start-up and administrative costs of your plan. And the contributions you make to your employees’ accounts are typically tax-deductible up to IRA limits.
5 Help boost owner and key employee savings—A retirement plan doesn't just benefit your employees. If you're a business owner, a qualified plan such as a 401(k) may allow you and other key employees to contribute more toward retirement than an IRA does. This can help to maximize tax savings for you and other high earners at your company.
Finding the right retirement plan for your small business
Small businesses have more retirement plan choices than ever. Common options include 401(k)s, SEPs, SIMPLE IRAs, and state-mandated plans, and each has advantages and tradeoffs. You can consult with your financial professional to understand all your options and find a plan that’s right for you.
Plan type |
May be best for |
Key advantages |
Key tradeoffs |
401(k) |
Employers seeking greater flexibility to meet participant needs and a more robust plan to attract and retain employees |
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|
SEP |
Employers seeking simplicity and employer-only contributions |
|
|
Employers with less than 100 employees seeking a simple option |
|
|
|
State-mandated plans |
Employers without a plan, especially very small firms |
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|
When to consider a retirement plan
Offering a retirement plan may seem like a big step, but today's legislative environment is making it more accessible, and the competition for talent is making it more valuable. Whether you're looking to attract and retain employees, meet your state’s requirements, take advantage of tax incentives, or boost your own retirement savings, a workplace retirement plan can deliver meaningful benefits. By understanding your options and working with your financial professional, you can adopt a plan that works best for your business and your employees.
FAQs
Does your small business have to offer a retirement plan?
It depends on where your business operates. Some states require eligible employers to provide employees with a workplace savings option.
What are some plan options for small businesses?
SIMPLE IRAs, SEP IRAs, and state-run retirement programs are simple, low- to no-cost options for small-sized employers. If you’re looking for more customization, higher savings potential, and tax advantages, 401(k)s are also an option.
Can a retirement plan help your business attract employees?
Yes, retirement benefits are increasingly a non-negotiable employee benefit and can help you compete and retain top talent alongside larger and smaller firms.
Are there tax benefits for employers that offer a retirement plan?
There are potential tax benefits. Eligible small businesses may qualify for federal tax credits to help offset plan start-up and administrative costs, and employer contributions are generally tax deductible.
How do you choose the right retirement plan?
The right plan depends on your business size, budget, administrative preferences, and goals. A financial professional can help you evaluate your options and determine which solution best fits your needs.
Resources to help fiduciaries
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Important information
Important information
This content is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice. Please consult your own independent advisor as to any investment, tax, or legal statements made.
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