So employers have a number of different choices of 401(k) plans that they could offer their employees. The best way to make that decision is to consult with their accountant or tax advisor but a number of factors will determine their choice:
Large businesses don’t need to consider SIMPLE 401(k) plans. Multiple Employer plans are unlikely to suit them either. Companies that aren’t eligible for particular kinds of plan will have fewer choices.
One of the choices that companies offering a 401(k) plan will need to make is whether to offer a Roth 401(k) or a traditional 401(k). Should they let employees pay taxes before making their contribution? Or should they allow them to defer their taxes until they start receiving their payouts? Or should they do both?
One factor that will weigh on that decision will be the salary levels at the company. A company with young, low-paid staff might prefer to offer a Roth 401(k). Their staff will be able to pay their taxes at their current low rates before their income—and their marginal tax rate—rises.
A 401(k) plan is a benefit that a company offers to attract and serve its employees. The attractiveness of that benefit will depend on what other companies are offering. Part of the process of creating a 401(k) plan will be looking at the 401(k) plans at similar companies competing for the same pool of potential employees.
That research will include listing the types of 401(k) plan available but also at the degree of matching contribution and the vesting time.
Cost and Complexity
Finally, while setting up some sort of retirement plan will be essential whether you work for yourself or own a small business, that plan will cost money. It will add to the cost of your employees and it will mean filing additional paperwork. The more complex the plans you offer, and the bigger the contributions you want to make, the more work and expense the plans will involve.
And, of course, once you’ve decided which types of 401(k) plans you want to offer you’ll still need to choose the funds in which you want to make the investments.
- What Is a 401(k)?
- How a 401k Plan Works
- 401k Contribution Limits
- The Difference Between a 401(k) and a Pension
- The Benefits of a 401k
- Four Alternative 401(k) Plans
- How Employers Should Choose a 401(k)
- What Is an Indexed Annuity?
- 5 Questions Employees Should Ask Before Choosing a 401(k)
- Contributing to Your 401(k) Plan
- Contribution Limits
- Matching Contributions
- Your Age
- How to Set Your 401(k) Contribution Targets
- Calculating Your Social Security Benefits
- What’s In Your 401k Plan?
- Track Your 401(k)
- The Present and Future Value of Your 401(k) and Why You Need to Know Them
- Rolling Over Your 401(k)
- You Don’t Have to Rollover Today
- Moving Your 401(k) to Your New Employer With a Direct Rollover
- Moving Your 401(k) to Your New Employer With a 60-Day Rollover
- Borrowing Funds from Your 401(k)
- Lend Yourself Interest-Free 401(k) Funds
- Borrowing from Your 401(k) to Buy a Home