Top Five Tax Reasons to Start a 401(k) Plan for Your Small Business

By Stuart Robertson

Owners and employees can enjoy some pretty cool and powerful tax benefits with a 401(k). In fact, an owner maximizing 401(k) contributions may enjoy greater tax and saving benefits versus not offering a 401(k) plan at all. Check out our web page for an example and greater detail on all the items below.

Drum roll please – here are the top 5 reasons to start a 401(k) plan for your business:

  1. Enjoy up to $19,500 in personal tax savings this year by starting a plan and contributing up to this limit. Note that if you are at least 50 years of age, you can put away up and protect up to $26,000 with catch up contributions.
  2. Lower your tax bracket! This is even more likely to be true for Solo 401(k)s. Yes, even the self-employed can start a 401(k) plan. As a Solo 401(k) user, you are both the employee and employer so you can provide both type of contributions up to the limit of $57,000 in 2020. Yes, if your income level enables this, you may very well drop a tax bracket. See the example here that shows how a Solo 401k user can lower taxes by $10,000 this year (scroll a section down on the page).
  3. Take advantage of Roth 401(k) Feature no matter your income. Unlike a Roth IRA, no matter your income level, you can contribute to the Roth 401(k) feature in your 401(k) plan up to the 2020 limit of $19,500. Could be a smart way to avoid or lower paying taxes in retirement.
  4. Receive up to $16,500 in tax credits to start your first plan. If you have 1-100 employees, your company can qualify for tax credits that will help cut your business costs in half of offering a plan. With low-cost providers like ShareBuilder 401k, your costs will likely be pretty darn small.
  5. If you provide an employer match, it is often 100% tax deductible! That’s right – for the skinny on how this works, just read this blog on the subject.

For more information on any of the top five tax reasons to start a 401(k), just click to our page that gives more specifics. Wishing you great success.

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.