401(K)S Offer Unique Benefits In Small Businesses
Running a small business can be a life-consuming process, so sometimes small-business owners miss the forest for the trees. Maybe that’s why only about 16 percent of businesses with fewer than 50 employees in the United States have 401(k) plans. Small-business owners are so focused on developing their businesses that some do not realize that those assets can grow at a much faster rate for their retirement under the right plan. An October survey by ING DIRECT’s ShareBuilder401k, which designs 401(k) plans for small businesses, found that “not enough employees” was the top reason cited by small-business owners as to why they do not have a 401(k) plan. That’s despite the fact that even sole proprietorships with no other employees can have 401(k)’s.
Of course, that’s not to say that small-business owners can’t use other retirement plans like IRAs. But there are some unique benefits to 401(k)’s. In 2001, Congress changed the laws in a way that allowed self-employed people to put more money into their 401(k)’s. Today, a business owner under 50 with a 401(k) can invest up to $46,000 a year into the account, with up to $15,500 ($20,500 if over 50) coming from his or her own income, and then up to 25 percent of the business’s profits under the “profit sharing” provision. Regardless of the size of the profits, the total amount cannot exceed $46,000 (or $51,000 if you’re over 50), but that can make a huge difference. That $46,000 “can drop you a tax bracket,” says Stuart Robertson, general manager of Sharebuilder401k. “That is a great tax shelter for these folks.”
But if, like many small-business owners, you’re not very familiar with 401(k)’s, what do you need to know before you get your own plan started? Read on…
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