How to Support and Grow Your Small Business With 401(k)

Tax advantages: A 401(k) provides a tax‑advantaged way for employers to invest in employees while deducting employer contributions.

Staying compliant: Offering a 401(k) can help employers meet state retirement mandates and, with safe harbor options, reduce ongoing compliance concerns.

Employee satisfaction: Employees increasingly expect retirement benefits, and a 401(k) helps position your business as a competitive employer that supports long‑term financial wellbeing.

A big part of small business growth is attracting and retaining the right employees—especially in a competitive job market. While reputation matters with customers, it matters just as much with your workforce. Offering a 401(k) plan can be a strategic way for small business employers to support growth, combining tax advantages, compliance simplicity, and long‑term employee loyalty.

How a 401(k) helps small businesses grow

The 401(k) plan has become one of the most common ways to save for retirement in the U.S. with many benefits for the business and the employees, yet many small businesses haven’t started taking advantage of it yet.

When designed thoughtfully, a 401(k) can support growth by improving retention, delivering tax advantages, and simplifying compliance—making it both an employee benefit and a business strategy

401(k) tax advantages for small businesses

From a business owner’s perspective, a 401(k) plan can support long‑term growth by combining tax advantages with a structured, predictable way to invest in employees.

Additionally, any employer contributions in a 401(k) plan—whether in the form of an employer match or profit share—are tax deductible. By making contributions as an employer, you can save money on taxes and boost retirement savings for yourself and any employees. Plus, with your own contributions, you can reduce personal taxable income and maximize your savings potential.

Simplifying compliance for small business owners

Beyond tax advantages, a 401(k) can help small businesses reduce administrative complexity and navigate an increasingly regulated retirement landscape with more confidence.

Safe harbor 401(k) benefits

A safe harbor 401(k) plan can simplify compliance for small business employers by reducing nondiscrimination testing concerns, which helps minimize the risk of costly corrections or penalties—allowing owners spend less time on administration and more time growing their business.

Meeting state-mandated retirement requirements

A growing number of states are passing legislation making retirement plan options a mandatory employer offering. A 401(k) not only allows you to meet state‑mandated retirement plan requirements but can offer more savings potential than an IRA as well.

2026 retirement plan contribution limits

Once you understand how a 401(k) can help meet compliance requirements, it’s helpful to compare how contribution limits influence savings potential for both employers and employees.

	Type of Retirement Plan
	401(k) Plan	Individual(k) Plan	SIMPLE IRA	SEP IRA
Employee contribution limits	Up to $24,500	Up to $24,500	Up to $17,000	Not allowed
Employer contribution	Flexible, up to 25% of compensation¹	Flexible, up to 25% of compensation¹	Mandatory contribution: generally, a 100% match on deferrals up to 3% of compensation OR a 2% contribution to all eligible employees²	Flexible, up to 25% of compensation¹
Catch-up contributions (in addition to maximum employer + employee limits)	Up to $8,000 for those aged 50+ OR an increased catch-up of $11,250 for those aged 60-63	Up to $8,000 for those aged 50+ OR an increased catch-up of $11,250 for those aged 60-63	Up to $4,000³ for those aged 50+ OR an increased catch-up of $5,250 for those aged 60-63	Not allowed

¹25% of compensation for employer tax deduction.

²Employer match may be reduced to as low as 1% for any two out of five-year period.

³Potential higher catch-up limits for participants in plans maintained by specified small employers.

Note: Employee contributions are not allowed in profit sharing plans and SEP IRAs.

Compare retirement plan options to see how contribution limits and features vary by plan type.

Boosting employee satisfaction with a 401(k)

Employees may feel more loyalty to you and your company if they feel their work is contributing to their own goals and success1. By offering a 401(k) plan, you create the opportunity for your employees to make tax-deferred contributions and take advantage of compounding interest to save for the future. Combine your plan with helpful participant tools and education and your employees will know that you’re prioritizing their financial wellbeing.

Not only does fostering financial wellness help you retain current team members, but it can be a strategy for attracting future employees as well. Current employees are more likely to recommend you as an employer if they feel supported. And with plenty of small businesses out there without 401(k) plans, your business can stand out from competitors in your area.

Financial wellness for employees

People want to work for companies that support them with everyday financial decision-making, along with saving for retirement.

A recent study showed that 75% of workers see a retirement plan as a “must-have”¹, which may not be all that surprising to you. But what that study also revealed is that employee interest in financial wellness tools and resources has increased dramatically over the last few years. The number of workers who view financial wellness offerings as “must-haves” increased from 18% in 2019 to 45% in 2023—nearly half of the workers surveyed¹.

Thinking about sponsoring a 401(k) for your small business for the first time can feel overwhelming, but we’re here to guide you every step of the way. You might want to start by consulting with your financial advisor. The right plan administrator will work with you and your advisor to customize a plan that meets your needs, communicating all the steps along the way, and encouraging your employees to get enrolled and participate in the plan.

Ready to get started?

If a 401(k) aligns with your growth goals, workforce needs, and compliance obligations, the next step is choosing the plan design and provider that best fits your goals.

For more information about the benefits of a small business 401(k) plan or how to get started, contact us at 833-893-3233.