401k Letters

4 Reasons Your Business Needs a Retirement Plan

For most Americans, their company 401(k) is their primary means of saving for retirement. Despite this fact, less than half of all small businesses offer a retirement plan as an employee benefit[i]. There are two sides to this problem – first, employers do not understand all the benefits of offering a plan and second, employers believe it is too costly or difficult to offer a plan. Here are four reasons your business needs a retirement plan.


Encourage Retirement Savings

The average retiree will need to replace 75 – 80% of their income during retirement. Some of that income will come from Social Security but the remainder must come from whatever savings the person has accumulated. Additionally, these savings must last for the duration of retirement – a decade or more in many cases.

Offering a 401(k) as a company benefit provides employees – and the business owner – with the possibility of saving for retirement in a regular and convenient way. Supporting the retirement plan with valuable information, clear communication, and support from a financial advisor can help employees understand the value of the plan and make the most of this benefit.

But what about apathetic employees? Popular plan designs, such as auto-enrollment and auto-escalation features, can help apathetic employees get into the plan and begin saving for their future by doing it automatically for them.


Reduce Participant Taxes

Do you want to pay less in taxes? I know I do and so do your employees! 401(k) plans can allow for great tax savings and many plans give the participants the choice of when they want to pay taxes. The standard 401(k) is setup for pre-tax employee contributions. This reduces your employees’ taxable income saving them money on taxes for the duration of their participation in the plan. These contributions then grow tax deferred until retirement when the employee will pay taxes on retirement distributions.

Many 401(k)s today feature Roth 401(k) contributions. This allows employees to choose to contribute after tax to the plan. These contributions are taxable today but then grow over time and can be withdrawn tax-free in retirement.

You and your employees can see significant tax benefits, either today or in retirement, by contributing to the plan.


Get a business tax deduction

Did you know that your business can save money on taxes too? Employer contributions to the retirement plan, such as an employer match or Safe Harbor contribution, can be claimed as a deduction on the business’ federal income tax filings. Employers can usually deduct up to 25% of the compensation paid (or accrued) during the year to eligible employees participating in the plan[ii].

In a newer tax benefit enacted by the SECURE Act, employers just starting to offer a plan may also be eligible to claim a tax credit of up to $5,000 for the first three years of the plan[iii]. This is a good indicator of how important encouraging retirement savings is to the government!


Retain and Attract Great Employees

Finding and keeping great employees is tough, especially in a tight labor market during the “great resignation.” Offering a 401(k) plan that features employer contributions can be a valuable benefit that helps you keep your current employees and attract new ones.

The pandemic caused a shift in what many employees are looking for in a job. Many job seekers are looking closely at non-salary benefits and a quality retirement plan is one of the top benefits employees are looking for. A recent survey of small business employees even revealed that 40% would consider leaving their current job for a new job with a 401(k) plan![iv]

Offering a 401(k) plan shows your employees and job seekers that you care about your employees and are committed to helping them save for retirement.

Employers play a significant role in helping their employees save for retirement. Offering a 401(k) plan can have significant benefits for your employees and your business.


If you’re considering offering a 401(k) for the first time, or considering changing your plan, consider the Kingdom(k)®. The Kingdom(k)® is a turn-key 401(k) for Christian business owners just like you. We make it easy for business owners to offer a quality plan that aligns with their faith values. Schedule a call to discuss your needs!



[i] https://am.jpmorgan.com/us/en/asset-management/adv/insights/retirement-insights/defined-contribution/401k-small-businesses-survey/#

[ii] https://www.irs.gov/publications/p560

[iii] https://www.irs.gov/retirement-plans/retirement-plans-startup-costs-tax-credit

[iv] https://www.glassdoor.com/employers/blog/4-reasons-offering-401k-matching-can-help-empower-workforce/