You're more eligible than you might think.
A recent SurePayroll survey of small business owners found that more than 70 percent of employers do not offer 401(k) retirement benefits
to their employees, based on the belief that 401(k) benefits are incompatible with small business.
In reality, 401(k)s are a great solution for small businesses, and there have been zero negative 401(k) changes for 2011 that have altered how easy and affordable it is for small businesses to offer 401(k)s. To set the record straight, here are some commonly-held myths and realities of small business 401(k)s: MYTH #1:
Small businesses are not eligible for 401(k) benefits. Reality:
According to IRS section 401(k), any business — whether it is a C Corporation, S Corporation, partnership, sole proprietorship or self-employed — can establish a 401(k) plan.
401(k)s are an especially great idea for small businesses who want a wider range of investment options, tax savings and a more flexible retirement plan for their employees. Read more about the 401(k) advantage. MYTH #2:
Small businesses can't afford 401(k) plans. Reality:
401(k)s can save administrative costs.
In recent years, 401(k)s designed specifically for small businesses have become available. In addition, recent changes to 401(k)s have allowed for more flexible online management of plans and plan bundling for both employers and employees, adding value, and in some cases, saving administrative costs.
401(k)s help employers save on taxes.
Employee contributions are taken out pre-tax which helps to lower employer taxes, as well as their own. Contributions to the 401(k) plan can come from voluntary employee salary reduction, from the employer, or both. Employers are not required to provide a match although many do and some add profit sharing to their 401(k) plans as an incentive.
401(k)s can qualify employers for special tax credits.
Additionally, a provision of The Economic Growth and Tax Relief and Reconciliation Act (EGTRRA) implemented a credit for employers to offset the startup cost and the cost of educating employees about a new plan. The credit equals 50 percent of the cost to set up and administer the plan, and educate employees about the plan, up to a maximum of $500 per year for each of the first three years of the plan. To file for the credit, employers can use IRS Form 8881 Credit for Small Employer Pension Plan Startup Costs.