401(k) Myths Debunked: Stop Holding Back Your Small Business

Jul 28, 2022

Let’s start with the truth. You’ve been considering a 401(k) plan for your small business, but it seems intimidating and confusing. The reality is that once you start the process, you’ll realize you’ve been missing out on a ton of benefits for you and your employees. Unfortunately, the misconception about 401(k) plans comes from a general lack of knowledge, and it keeps businesses with huge potential from growing. 

Let’s dispel some of the most common 401(k) myths that are holding you back from starting your retirement plan today. 

Myth #1: My company is too small to offer a 401(k) plan.

Fact #1: From the self-employed person to a large corporation, every size business can and should offer a 401(k) plan.

The benefits are big for everyone. With emergency access to funds, Roth 401(k) options, and many tax benefits, a 401(k) plan may give your business the boost that it needs to succeed. 

Furthermore, in the state of California, any business with at least 5 employees is required to offer some type of retirement plan. Stay ahead of the curve and keep your business relevant no matter what industry you’re in.

Tip: If you are a one-employee business, check out this Solo 401(k) article.  

Myth #2: Offering a 401(k) plan is too expensive to set up.

Fact #2: 401(k) plans are flexible, and there are plenty of low-cost solutions for small businesses. 

In all transparency, 401(k) plans are only as expensive as you make them in your plan design. You can expect to pay for the setup and maintenance, but generally, these costs are tax deductible. Moreover, your business qualifies for additional IRS tax credits. These tax-smart strategies will greatly offset the setup and administration charges you may incur. 

Myth #3: I have too much employee turnover to offer a 401(k).

Fact #3: Offering a retirement plan is a crucial strategy to attract and retain quality employees in today’s labor market. 

Times have changed, and people want benefits – plain and simple. If your company doesn’t offer them, the chances are your employees will jump ship to your competitor.

In a survey done by the American Institute of CPAs (AICPA), Americans are four times as likely to choose a job with benefits over an identical job that offered 30 percent more salary but no benefits. Some of this is allocated to health insurance, but it more reflects a widespread concern modern-day workers have about their retirement future. Now, workplace value reaches beyond just a paycheck, and people are starting to notice.

Tip: To learn how to fix high turnover, check out this article on Employee Retention Strategies.

Myth #4: Matching is required to offer a 401(k) plan.

Fact #4: An employer match is completely optional and not required to start a 401(k). 

There are many plan options and features to choose from depending on how it benefits both your business and your employees. Some companies choose a Profit-Sharing plan, only sharing funds in a good, profitable year. Others choose specific vesting schedules solely for the purpose of employee retention. 

Are there benefits to matching? Absolutely. Do you have to? Absolutely not.

Myth #5: Setting up a 401(k) is complicated and time-consuming.

Fact #5: Employers today only have to make simple decisions regarding which plan design is right for their business.

Plus, it can probably be set up over a 30-minute lunch meeting. Want to streamline the process more? Make it a Zoom meeting. Gone are the days of piles of paperwork. Enter the times of digital technology and a 401(k) Advisor that does it all. 

Tip: If you choose an ERISA 3(38) provider like Prosperity 401(k) Advisors, they can provide even more investing expertise and decision-making insight for your business. Less responsibility for you, better investment choices for your employees. 

There are substantial reasons to start a 401(k) plan for your small business today, from tax benefits to differentiating yourself from the competition. With Prosperity 401(k) Advisors, you’ll have guidance at every step of the way and the investment knowledge needed for everyone to retire comfortably. Get started today with a free consultation, or book your Complimentary 401(k) Benchmark below.

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