Why Small Firms Should Set Up 401(k)s

From the Wall Street Journal.  Tips on why smaller firms, even as small as a single employee, should set up a 401(k).

First the bad news: A recent study by SurePayroll found that more than 70{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} of small firms didn’t offer a 401(k) plan to their employees.   That comes at a time when the need for more money to retire is becoming obvious.  The good news is that the average amount in 401(k) plans is $80,600 according to Fidelity Investments.

The reason more small companies don’t start a 401(k) plan is the perception that they are difficult to start and hard to administer.  Neither is true.  There are a number of companies that administer 401(k) plans for small businesses.  In addition, local RIA firms will be happy to set up a 401(k) for you and meet with your employees to explain the plan.  The giant providers won’t do that.

The financial advantage to business owners is significant.  You can put up to $17,500 away per year ($23,000 if you’re 50 or older), much more than into an IRA.  In addition, the plan attracts and retains good employees as well as being a good way for them to save for their own retirement.