Understanding 401(k) Retirement Plan Options for Small Businesses

If you’re a small business owner thinking about offering a retirement plan for yourself or your employees, a 401(k) plan might be worth exploring.

While these plans might feel complex or out of reach for small businesses, recent tax incentives and plan design options may make it easier and more affordable than you think.

This article highlights key information about employer-sponsored 401(k) plans, including how they work and potential tax benefits.

What Is a 401(k) Plan?

A 401(k) plan is a retirement savings plan that business owners can put in place for the benefit of their employees and themselves.  

Generally, these plans are funded by employees making payroll contributions directly from their paychecks, kind of like a direct deposit into their retirement.  

Employees can choose to contribute a portion of their wages—either as a fixed dollar amount or a percentage of their pay—to the plan through payroll deductions. These contributions can be made on a pre-tax basis or as Roth (after-tax) contributions, depending on the plan design.

In 2025, individuals can contribute up to $23,500 to a 401(k), with an additional $7,500 catch-up contribution allowed for individuals aged 50 or older.

Employers may also contribute in two ways:

• Employer match: The company matches a portion of the employee's contributions.

• Profit-sharing: The business contributes a discretionary amount, typically based on profits.

“A 401(k) can help employees save for tomorrow. There is serious potential for tax benefits here, for both employees and business owners,” said Mike Albert, district sales manager, retirement, for SurePayroll® By Paychex. “In fact, 94% of employees are interested in a 401(k) plan, second only to health insurance.”

Why Offer a 401(k) Plan?

There are several reasons small business owners might consider offering a 401(k) plan:

• Tax savings for employees: Pre-tax contributions reduce employees’ taxable income.

• Tax-free growth: Money inside a 401(k) can grow tax-deferred, so more money stays in the account and continues compounding.  

• Tax deductions for employers: Certain contributions a business makes toward its employees’ 401(k) plans may be a tax-deductible business expense. They are also typically exempt from payroll taxes.

• Attracting and retaining talent: According to a 2020 Paychex and ClearlyRated study, 94% of small business employees express interest in a 401(k), second only to health insurance.

Tax Credits for Small Businesses

Thanks to the SECURE Act and its expansion under SECURE Act 2.0, many small businesses—especially those with 50 or fewer employees—may qualify for significant tax credits.

Qualifying companies may receive:

• Up to $5,000 per year for three years in tax credits to help offset certain qualifying plan setup and administrative costs.*

• An additional $500 tax credit per year for three years is available to qualifying businesses if the plan includes automatic enrollment.

That’s potentially $16,500 in tax credits for qualifying businesses. Because these are tax credits—not deductions—they reduce your tax liability dollar-for-dollar.

“The potential of up to $16,500 in tax credits over three years, as well as possible employer contribution credits, has the potential to significantly offset the expenses of adopting a 401(k) plan,” Albert said.  

Types of 401(k) Plans Offered Through Sure401k

Sure401k through SurePayroll offers several plan types to meet the needs of small and micro-businesses:

1. Solo 401(k): For business owners with no employees other than a spouse. Offers high contribution limits and Roth or traditional options.

2. Traditional 401(k): Offers maximum plan design flexibility, including matching formulas and vesting schedules. These plans are subject to IRS nondiscrimination testing.

3. Safe Harbor 401(k): These plans automatically pass certain IRS compliance testing requirements if specific employer contribution rules are followed.

Both traditional and safe harbor plans meet the current requirements of existing state retirement mandates. Without adopting one of these plans, employers in some states may be required to enroll in a state-facilitated program, which usually defaults to an IRA.  

“(A safe harbor plan) can be small business-friendly,” said Albert. “We see many companies with 50 or fewer employees choose this type of plan because it provides a meaningful benefit for employees and the small business owner.”

Why Consider a Safe Harbor 401(k)?

Safe harbor 401(k) plans offer several advantages, including:

• Maximized contributions: Business owners and highly compensated employees may contribute the full annual limit without the risk of having those contributions refunded due to IRS testing issues.

• Avoids nondiscrimination testing: These plans automatically pass certain IRS compliance testing requirements when specific contribution rules are met.  

• Potential tax savings: Owners may reduce their personal taxable income by maximizing contributions, while qualifying businesses may be eligible for up to $16,500 in potential tax credits.*

• Satisfy state mandates: Safe harbor plans satisfy current retirements of existing state retirement mandates.
  

Key Deadlines for 2025

To implement a safe harbor 401(k) plan for 2025, federal law requires the plan to be active for at least 90 days within the plan year.

That means October 1, 2025, is the deadline to establish a new safe harbor plan with matching contributions.

Starting the setup process several weeks before the deadline is recommended to allow for onboarding, documentation, and administrative tasks.

H2: How SurePayroll Can Make 401(k) Easier for Small Business

SurePayroll specializes in supporting small and micro-businesses.  

“Most of our clients have fewer than 10 employees, so we understand the day-to-day demands you face and the value of keeping things simple,” Albert said. “That’s why we built our 401(k) plan solution with small businesses in mind.”  

Key features include:

• Payroll integration: Ties into SurePayroll account, so no double entry or syncing needed.

• Reduced administrative burden: Working with a retirement services provider like Sure401k and its affiliate can help reduce the administrative burden of offering a 401(k) plan.

• Employee access to investment options from leading providers: Helps small businesses attract and retain talent, even in a small team.

Ready to Learn More?

If you’re interested in exploring how a 401(k) plan might fit into your business, we’d be happy to help.

SurePayroll and Sure401k are here to support small business owners who want to provide meaningful retirement benefits while keeping administration and costs manageable.

Interested in starting a Safe Harbor 401(k) plan before the October 1st deadline? Reach out today so we can walk you through your options and timeline.  

Call us at 866-497-2028 or fill out the contact form our website to connect with a SurePayroll representative.

_{* Eligible businesses may qualify for a federal tax credit of up to $5,000 annually for three years for administrative and certain other qualifying costs for establishing a workplace retirement plan. An additional $500 credit annually for three years is available if your plan offers automatic enrollment.}

‍