The 401(k) Advantage

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Here are several reasons why 401(k)s are an excellent choice for the small business employer.

Small businesses are eligible:

Any business — whether it is a C Corporation, S Corporation, partnership, sole proprietorship, or self-employed — can establish a 401(k) plan.

Employers have greater control regarding eligibility:

The employer sets eligibility requirements at the time the plan is established. Additionally, they can also restrict individuals with less than 1 year service, union members, non US citizens, part-time workers, etc., from being eligible for the plan.

Contribution flexibility:

Contributions to a 401(k) plan can come from employees' voluntary contribution, from the employer or both. Each individual employee can defer up to $16,500 per year. Participants who are at least 50 years old can contribute an extra $5,500 per year.

Employers can establish a vesting schedule, within certain guidelines, for the contribution the company makes to the 401(k).

Employers are not required to make any contribution to the 401(k), although the employer may have some obligation to contribute if plan is considered "top heavy" after annual non-discrimination testing.

Additional benefits to employers:

  • There is a wider range of investment options available for the plan sponsor to offer, compared to other retirement plans.
  • Because overall employees' taxable income is reduced with pre-tax 401(k) contributions, overall employer payroll taxes may be reduced.
  • Employers may obtain a tax credit due to the Economic Growth and Tax Relief and Reconciliation Act (EGTRRA) to offset the startup cost and the cost of educating employees about a new plan.
Additional benefits to employees:

  • Employees are immediately 100 percent vested with their own tax-deferred contributions.
  • Employee withdrawals before age 59 1/2 may be subject to 10 percent penalty.
  • Employees that retire any time during the calendar year in which they turn 55 or older are not subject to the 10 percent penalty.
  • Employee contributions to a 401(k) are not subject to federal income taxes until a distribution from the plan is made. Any investment gains and earnings are tax-deferred until they are distributed.
  • 401(k)s can permit loans and hardship withdrawals.


Small businesses stand to gain much from a 401(k) plan. Plan administration is now easier and more cost-effective than ever with Internet options available to small employers. And with most businesses offering their employees retirement benefits, it is worthwhile for small businesses to compete for talented workers by implementing 401(k) benefits.

To ask more questions about 401(k)s and to find out if Sure401k can help call or go to the Sure401k information page.