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Three Surprising Ways a 401(k) Can Help Your Business through Challenging Times

By Stuart Robertson

Small business owners often think of starting or investing in a retirement plan like a 401(k) when markets are steady, and business is strong. Afterall, 401(k)s are the go-to benefits to build a nest egg for the future, protect earnings from taxes, and recruit and retain top talent – all great things to consider when times are good.

What many entrepreneurs and small business owners don’t realize is starting or investing in a 401(k) can be a smart move in periods of market downturn and uncertainty, like those we’ve experienced over the past few months. Here are three ways 401(k)s can benefit small businesses and their employees through challenging times:

  1. Potential for bigger market returns. Investing through a downturn can be like buying at a discount or at a low. Historically, markets have rebounded off lows. While there are no guarantees, over time as markets recover, your nest egg gets a bigger boost because you bought at a lower price during the down times. If markets are volatile and jump up and down, investing can still play to your advantage. Consider this hypothetical example where markets drop dramatically from a high and then partially recover, and how an investor can be better off:
The Upside of Investing in Volatile Markets
Period Amount Contributed Fund Share Price Shares Purchased
1 (market high) $500 $100 5
2 (market low) $500 $50 10
3 (recovering market) $500 $75 6.67
Totals $1,500 $75 average 21.67
Value $1,625.25 21.57 shares x $75

By investing through the ups and downs, the investor in the example above is 8.35% better off even though the market has not come close to exceeding the previous high. To learn other insights on investing in volatile markets, check this story out.

  1. Money protected from creditors. For business owners facing creditors or even the unfortunate possibility of bankruptcy, one major advantage to having a qualified retirement plan such as 401(k) plan is that all contributions and earnings in those accounts are generally protected from creditors – so those retirement savings are safe.

  2. Emergency access to cash. A penalty-free access to a 401(k) loan of half your vested balance up to $50,000 has always been a nice emergency feature of 401(k) plans. And now during this extraordinary time of the pandemic, employees including business owners with an IRA or 401(k) that face financial difficulty due to COVID-19 have the option of taking a hardship withdrawal of up to $100,000 from either of these retirement account types with no tax or penalty through the end of 2020. This can be worth considering if you are struggling through a tough time, but you’ll want to understand the risks and implications of doing so.

Taking the step to start a retirement plan and invest in the markets can feel overwhelming for business owners and workers at any time, and even more so with the challenges and uncertainty we’ve faced in recent months with COVID-19. But for many businesses, starting and investing in a plan during times like this could offer unique benefits – including added protections for your savings, potentially higher than average returns, and more options for you and your valued employees to better manage through financial emergencies.


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