When you’re self-employed, nobody is saving for your retirement except, hopefully, you. (And as a freelancer, I’m right there with you.) But if you have employees, one of the most valuable benefits you can offer them will also provide you with a structured, tax-advantaged way of building your own nest egg: a 401(k) plan.
Many small business owners shy away from offering a 401(k) because they believe it may be too costly or difficult to manage, but that isn’t necessarily the case. Offering employees a 401(k) option may be easier and more affordable than you ever thought possible.
“Retirement is the second-most requested benefit right after health care,” says Andrew Meadows, consumer and brand ambassador at The Online 401(k). “Employees want it, so providing this not only retains current staff, but is a great tool to attract new talent. While there are other options such as IRAs, 401(k)s are the best option due to the ability to make the higher contribution limits.”
Implementing a 401(k) can be accessible and easy — and life-changing for your employees. Here are the answers to some of the most commonly asked questions regarding small business 401(k) plans.
Won’t It Cost Too Much?
The cost of a 401(k) plan comes in two forms, Meadows says: One is administrative work, such as documents, testing and tax reporting, and the other is investments. Administrative work costs depend on the provider you choose and can range from $105 a month to $5,000 a year.
“Investments are a bit trickier,” Meadows says. “First, these costs come from the funds and are barely visible. Most small businesses aren't experts in this, so 1.5 percent doesn't sound like a lot, but it certainly can be over time.” To protect your savings and the savings of your employees, Meadows recommends finding an investment vehicle with investment costs under 1 percent.
“Small business owners have a number of affordable options available to them, and in fact, have access to the same institutionally priced investments as large organizations with thousands of employees,” says Mike Narkoff, senior vice president at Ascensus, a provider of high-quality retirement plan solutions for organizations of all sizes. “Employees can share in the costs, similar to how businesses manage health care offerings.”