Top Five Small Business 401(k) Questions Answered

By Stuart Robertson

Owning a business comes with a lot of perks: being your own boss, setting your own schedule, and creating something special for customers and employees. But when it comes to 401(k) plans, it can be tough to know all the important facts, especially small business owners often wearing many different hats. Let’s address a few of the most common questions we get asked all the time.

Is my business too small for a 401(k) plan?
Businesses of any size can have a 401(k) plan. A recent survey conducted by ShareBuilder 401k found that nearly 58% of business owners believed their company was too small to qualify for a 401(k) plan.^ Companies of all sizes, from the self-employed to businesses with thousands of employees, can create a 401(k) plan.

Are employer matching contributions required to offer a 401(k) plan?
Nope! Despite around 32% of small business owners believing contributions are required / can’t afford it,^ matching is optional. You can 1) skip matching entirely, 2) use vesting to to manage costs and leverage as an employee retention tool, 3) provide as a profit share, or 4) opt for an immediately vested match to ensure you can maximize the plan.

Do know that employer contributions including matching can qualify for tax credits and/or tax deductions which offset the costs. It’s more of a cash flow consideration for most.

One thing to consider is that by not matching, you may reduce the amount higher-earning employees can contribute — including the business owner.

What are the tax benefits of having a 401(k)?
The tax benefits of 401(k)s are significant. First, by choosing a 401(k) over another type of retirement plan, you can enjoy higher saving limits and tax savings. For 2023, 401(k) contributions are capped at $22,500, or $30,000 for those age 50 or older. Compare that to an IRA plan, which maxes out at only $6,500.

For the self-employed, they may be able to contribute to their account from their company and as an employee to sock away $66,500 in a year (the 2023 limit).

The more you contribute tax-deferred, the less income taxes you’ll pay this year. Of course, you can choose to leverage the Roth 401(k) to save on taxes tomorrow instead.

Is setting up a 401(k) plan difficult?
Launching a new 401(k) plan is pretty easy. Online setup typically takes about 15-25 minutes, and you’ll only spend 5 or so minutes on plan maintenance each payroll period. When you purchase a plan through ShareBuilder 401k, you can take care of everything online and paper-free.

Are 401(k) plans expensive?
Business with 1-50 employees can potentially end up paying $0 for a 401(k). A new law called Secure Act 2.0 allows businesses to apply up to $15,000 in tax credits against qualified 401(k) costs, including setup and administration. With providers like ShareBuilder 401k, the amount paid out of pocket is a fraction of that amount.

ShareBuilder 401k offers plans starting as low as $25 per month for the self-employed and $95 per month for businesses with fewer than 10 participants. Pair that affordability with all the great tax credits and benefits, and you’ll be in a great position to build a nest egg for yourself and your employees.

Now that you know how simple (and smart) it is to start a 401(k), tell us a little about your business and we’ll provide you info on 401(k) services, features, and pricing online in a few short minutes. When you decide to start your plan, you can have your new 401(k) plan up and running in two to five business days.

  • ^ShareBuilder 401k Small Business Retirement Index, ShareBuilder Advisors, April 2022. The ShareBuilder 401k Survey was conducted by Wakefield Research among 500 U.S. business owners of companies with 1 to 50 employees.*

Meet the Author

Our low-cost 401k plans are easy to setup online and are supported by our 401k advisors and specialists. ShareBuilder 401k serves small business and medium-sized companies, as well as the self-employed. We offer Roth 401k, Safe Harbor 401k, Traditional 401k, and Solo 401k options. Your 401k plan is paired with investment management expertise and employee education to help you save more.