Top Five Reasons Small Businesses Should Start A 401(k) Plan This Year

Financial incentives: Significant tax credits are available for small businesses starting a 401(k) plan this year, along with tax deductions for employer contributions.

Recruiting and retention: Offering a 401(k) plan makes your business more competitive as hiring pressures continue, while keeping current employees engaged.

Owner advantages: Modern small business plans are simple to manage, making it easier to start without adding operational strain—and allowing you to save for your own retirement, too.

Small business owners make hundreds of decisions every day—many of which affect cash flow, employees, and long‑term growth. That’s a lot of pressure.

Starting a 401(k) plan isn’t a small decision, but doing so this year can deliver meaningful tax advantages and business value that extend well beyond the plan itself.

Reason #1: Tax credits for starting a 401(k)

Recent legislative changes and expanded tax credits make now an especially good time for small businesses to consider starting a 401(k). The SECURE Act increased the amount of tax credits available to small businesses starting a 401(k) plan—from $500 to $5,000 per year* for the first three years the plan’s in place. That’s a total of up to $15,000 over the course of three years to help offset administrative costs.

Credits can be used to cover up to 50% of eligible expenses, including setup and administrative fees, as well as other costs associated with starting the plan. The SECURE Act also included an additional $500 tax credit per year for up to three years for new plans that include automatic enrollment (totaling up to $1,500).

These credits were expanded under the SECURE Act and SECURE 2.0 to make starting a 401(k) more affordable for small businesses.

Learn more about how to set up a 401(k) plan and qualify for available startup tax credits.

Reason #2: Tax deductions for employer matching

While you’re not required to match employee contributions as a 401(k)-plan sponsor, many small business owners do decide to offer a matching agreement as a benefit to employees. Any matching contributions made by the employer are tax-deductible, and employers have a variety of contribution options to choose from, including a dollar-for-dollar match, a partial match, and profit-sharing options as well.

Unlike startup tax credits, these deductions apply year after year—providing ongoing tax efficiencies once a plan is in place.

Reason #3: Improved employee attraction and retention

Offering a retirement savings plan can help small‑ to mid‑size businesses stand apart from competitors—making applicants more likely to accept offers and current employees less likely to look elsewhere.

In addition, reducing employee financial stress often leads to higher engagement and productivity, helping lower the long‑term costs associated with turnover and hiring.

Reason #4: It’s easier (and lower risk) than you might think

Many small business owners don’t know if they have the time or capacity to run a 401(k) plan along with everything else they do, but luckily, there are 401(k) providers out there that specialize in helping small employers run their plan. Whether you have one employee or 100, there’s a 401(k) plan to fit your company's needs and goals. Some providers even build fiduciary protections into their services to help take the legal responsibilities and fiduciary liabilities associated with running the plan off your shoulders.

Plus, there are 401(k) providers out there who can help you streamline your benefits processes by integrating with your payroll provider—saving you time and money, reducing errors, minimizing your administrative tasks, and making timely investment of employee 401(k) contributions on your behalf saving you time and money, reducing errors, minimizing your administrative tasks, and making timely investment of employee 401(k) contributions on your behalf.

For many small businesses, working with the right provider means fewer compliance headaches, clearer responsibilities, and less personal risk for the plan sponsor.

Reason #5: Greater retirement savings potential for owners and employees

A 401(k) isn’t just for employees; it lets the business owner save for retirement in a tax-advantaged way, too, so you can work towards securing your own future while helping your team. Compared to options like IRAs, 401(k) plans offer higher contribution limits and flexible plan designs that can be tailored to your business goals.

For companies with a higher number of Highly Compensated Employees (HCEs), safe harbor 401(k) options can help streamline compliance and reduce concerns around nondiscrimination testing.

To make full use of these features, plans typically need to be established before applicable deadlines for the year.

Ready to get started?

There are, of course, more than just five reasons to consider starting a 401(k) plan for your small business this year. Starting earlier gives you more flexibility around plan design, provider selection, and eligibility for available tax incentives—without having to rush decisions later.

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