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Setting Up 401(k) For Your Biz
Q: How do I start a 401(k) plan for a non-profit organization – and also, how do I do it for a self-employed small business?
A: Setting up a 401(k) savings plan is relatively easy, and the process is the same for nonprofit organizations and small businesses.
Start by contacting a major financial institution or brokerage that offers 401(k) programs. You may want to ask fellow business owners and colleagues for referrals.
Once you identify an appropriate provider, you will be asked to supply information about your company and its employees, such as their start date, employee status and levels of compensation, says Willard Brumbaugh, an insurance and annuity agent based in Apple Valley, Calif.
The company will prepare several options for you to consider. One critical decision every employer faces is how much money the company can commit to the plan, Brumbaugh says.
For example, some employers may choose to match 50% of every dollar contributed by the employee up to 6% of his earnings. Others may choose not to participate in a matching program at all.
Consider the provider’s service quality and past performance. You’ll also want them to provide high-quality communications materials that will resonate with your employees, says David Wray, president of the Chicago, Ill.-based nonprofit organization Profit Sharing / 401k Council of America.
Ensure that fees are clearly explained, and that you’re paying a reasonable price. Wray advises talking to at least three different providers. Choose the option that most closely matches your company’s goals.
Photo by OmirOnia.
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Willard Brumbaugh on March 28th, 2008 3:43 pm
Having particpated in this article, I would like to add my personal evaluation of 401(k)s and other Qualified Plans in general. These plans, if fully participated in during one’s working years, ultimately defeat the argument by which they are sold. The eventual outcome in postponing the income taxes, in such cases, is finding out that at retirement the paricipant is in his or her highest tax bracket at retirement. For more information on this matter, please go to my website, http://www.willardbrumbaugh.com
John on March 29th, 2008 3:25 pm
Don’t make this hard. Every small biz owner ought to be taking advantage of some version of a 401k or SEP-IRA.
It’s the best way keep more income for yourself and build a healthy retirement. To counter the earlier comment, investigate the use of personal Roth IRA’s that use after tax dollars so that tax problem is much less later on.
All these are super easy to set up. There’s about 4 choices depending on things like participation, and employee/employer contributions.
Just read through the material which is available online or at an investment center like Schwab or Fidelity, download the forms and send them in.
Bottom line is – do it now!
Willard on June 26th, 2009 5:42 pm
John, you strained to disagree and ended up agreeing with me.
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