Is My Business Too Small to Offer a 401(k) Plan?

Size: You don’t have to own a huge corporation to offer a retirement plan. Even owner‑only businesses or companies with just one employee can offer a 401(k) plan.

Affordability: Small business retirement plans have tax advantages, including tax credits of up to $5,000 per year for 3 years and tax-deductible employer contributions.

Talent: Offering retirement benefits will not only help you attract and retain employees, but give you a tax-advantaged way to save for retirement, too.

Small businesses are often touted for their wonderfully supportive, close-knit cultures where employees feel valued and heard. But compared to their corporate counterparts, many small businesses are behind when it comes to benefits. And since today’s workforce expects employers to help with things like healthcare and retirement savings, this creates a problem for small businesses that don’t offer a retirement plan.

For small business owners weighing whether a 401(k) is a realistic option, it might be helpful to separate fact from fiction.

Common reasons small businesses avoid offering a 401(k) plan

There are many reasons a small business might not think a 401(k) plan is a viable option for them, but the three most common are:

“My company isn’t big enough.”
“I can’t afford to sponsor a plan.”
“My employees aren’t interested.”

These common retirement myths often stem from limited time or incomplete information, but the realities of workplace retirement plans are often more flexible than many small business owners expect.

Myth #1: My business is too small to offer a 401(k)

Reality: Any size business can offer a 401(k) plan. In fact, many providers offer plans specifically designed for owner‑only or very small businesses.

The next time you start thinking about how your business doesn’t have enough employees to warrant a retirement plan, remember that one is all it takes. And helping any number of employees save for a more secure future is worth it.

Myth #2: A small business 401(k) is too expensive

Reality: Cost is a common concern, but sponsoring a 401(k) plan may be more affordable than you think. In some cases, the employer cost can be lower than other commonly offered benefits, such as health insurance or paid leave.

In addition, qualified employers may be eligible for tax credits of up to $5,000 per year for the first three years* simply for starting a plan. Employers also have the flexibility to offer matching contributions or not, based on plan design and budget.

For businesses that do add money into employee retirement accounts, that amount is usually tax deductible. When startup credits, ongoing deductions, and employee impact are considered together, a 401(k) plan can often deliver incredible long‑term value for small businesses.

Myth #3: Employees don’t want a 401(k) benefit

Reality: Retirement benefits are viewed by employees as high‑value offerings—especially in competitive hiring markets where salary alone may not differentiate one employer from another.

Access to a workplace retirement plan can help employees feel supported in working toward long‑term financial security and can also play an important role in attracting and retaining top talent. For many small employers, offering a 401(k) is not just about retirement; it’s about signaling an investment in employees’ futures.

Why more small businesses are choosing to offer a 401(k)

Regardless of size, small businesses that decide to offer an employer‑sponsored retirement savings plan tend to cite similar business-driven reasons—many directly tied to hiring, retention, and long‑term stability¹:

53% to increase job satisfaction among employees
52% to retain existing employees
47% to attract new employees
46% to inspire loyalty among employees
45% to offer a competitive employee benefits package
34% to take advantage of potential tax benefits

These reasons suggest that offering a 401(k) is often less about company size and more about supporting growth, competitiveness, and long‑term workforce stability.

Additional reasons to offer a small business 401(k) plan

There are some other practical considerations that can make a 401(k) especially relevant for small businesses.

Business owners need retirement savings too

Don’t forget that as a small business owner, you also need to grow some sort of nest egg to have a financially secure retirement. Assets in 401(k) plans and similar accounts can grow tax-free, and the reality is, we’re more likely to save for retirement when we have access to an employer-sponsored retirement savings plan—regardless of company size or job title.

A retirement plan might be required in your state

Many states have already introduced laws that provide state-run retirement savings initiatives, which means you might be required by law to provide some sort of retirement savings program to employees. Specific regulations vary from state-to-state, so it’s a good idea to look at current legislation regarding your state’s mandated retirement program.

Ready to get started?

If concerns about size, cost, or employee interest have been holding you back, understanding how small business 401(k) plans actually work can help you determine whether now is the right time to start.

For more information about small business 401(k) plans, contact our team at 833-893-3233.