Do My Workers Need a 401K Plan?

Curious to whether you should be offering a 401K plan to your workers?

There are many changes that have made 401K plans easier to get for any business, even the small business start-up.

If you are curious about these type of benefits for your workers, read on and see if setting one up is right for you.

Starting a 401K Plan

To get a 401K plan started up in your company, first look at the IRS and the Department of Labor to see what the legal minimum guidelines are. You're going to want to adhere to them before you start anything else.

After that, create a document that is going to outline your guidelines, including who is going to be covered.

Only you can decide who you want to include in this type of plan, and many employers determine it by the seniority of the worker, the age, and if they are a fulltime or a part-time worker.

Types of 401K Plans

There are several types of 401K plans, such as Safe Harbor, SIMPLE, and traditional.

With a traditional 401K, there is more flexibility with contributions. Employers can match employee funds, provide the funds for the employee entirely, or do both. In a traditional 401K plan, it is subject to the vesting schedule.

In a SIMPLE plan, or Savings Incentive Match Plan for Employees of Small Employers, there must be less than 100 workers involved in the plan and the contributions are fully vested. It is a cost-effective means of 401K planning.

Lastly, the Safe Harbor plan is close to the traditional plan except that the contributions that are made by the employer are vested when they are made. The Safe Harbor plan has the least amount of tax rules involved.

What if You Don't Have Employees?

If you are a small business that is owner-operated and do not have employees, you need to start a 401K by the end of the year. Even if you do so on Dec. 31, you can get a full year's deduction. This is important for those with owner-only businesses.

With the 2001 Tax Relief Act, owner-only businesses can now contribute more and have the same effectiveness as if you were a business with workers. Remember, there is a loan option on 401K plans that means you would be borrowing from yourself, and paying yourself back the interest. This could make 401K plans very tempting for some small business owners.

401K plans can be a great lure to get quality employees at your company. Many are looking at the larger picture, not just base salary, and will go where there is great insurance and perks like a 401K plan.

Only you are going to be able to determine whether a 401K plan is right for your company.

About the author

Tina Samuels writes on small business topics and for About.com's Radio Controlled Vehicles.

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