Small businesses are always looking for ways to compete with big companies in terms of attracting and retaining talented employees. Often, the fees related to offering a 401k plan are too expensive for small businesses to swing, so they go with other retirement arrangements that provide some retirement benefits for their employees. However, they don’t always have the same benefits that a 401k has.
For example, an IRA is a popular retirement option for individuals and small businesses. Unfortunately, the contribution limit for a traditional or Roth IRA is $5,500 or $6,500 if you are 50 years old or older. When you compare an IRA vs 401k, this is not very much money when you really think about it. Certainly, saving anything toward your retirement is a good idea, but there is a better option: the online 401k.
The contribution limit for 401k plans is currently at $17,500. That is significantly higher than just about any retirement plan available. In addition, this amount does not count employer contributions, which can be as much as your contribution, if you are contributing the same amount as your employer is matching. When you can contribute to a 401k more than three times what you can contribute to an IRA, you can save a whole lot more toward your retirement.
Online 401k plans allow small businesses and individuals to contribute to a 401k plan and reap all of the benefits of investing in this type of retirement account. A 401k account is a fairly low-risk investment, but if you’re just looking for an easy way to save for retirement, you really can’t go wrong with contributing to one.
Benefits of an Online 401k Plan:
Probably the nicest part about investing in an online 401k plan is that you don’t have to manage it. You sign up with a company that does all the hard work for you. This is not usually the same company that actually monitors your investments. In addition, you get all the same benefits as a traditional 401k that is often available with large employees. These benefits include:
- High contribution limits. As mentioned above, you or your employees can max out their contributions at $17,500 for 2013. You can also include an optional profit-sharing feature of as much as $33,500. Employees who are 50 years old or older can save up to $23,000 per year.
- Loans are available. A feature that is particularly attractive to employees is the ability to take out a loan from their 401k if they need it. Loans can be up to 50 percent of the account’s vested balance not to exceed $50,000.
- Investment options. You can choose the funds in which your money is invested. You will be presented with a number of funds that are available to you, each with varying degrees of risk. Based on your age and investment style, you will be able to choose the funds that will likely give you as much money as possible when you retire.
- Employer matching. As with traditional 401k plans, you will be able to match your employees’ contributions to whatever percentage you want.
Beyond the normal benefits of a 401k, online 401k plans offer small businesses even more advantages. These are:
- Low-cost administration. One of the reasons you’re looking for a 401k alternative is likely because you can’t afford the normal fees associated with running a typical plan. When you choose a 401k plan online, you will pay a very nominal fee as low as $250 per year for the company to manage your plan. In addition, all fees associated with plan administration are tax-deductible.
- Simple set-up. Your 401k can be up and running in minutes. Once you establish your plan, you won’t be stressed out about managing it because that will all be taken care of for you and your employees.
- Form-filing services. If you don’t want to deal with all the paperwork that is associated with managing a 401k, you don’t have to. Online 401k management companies will gladly do this for you, for an extra fee. Usually, as a small-business owner who is probably very busy, the fee is worth it.
- Access your account any time you want. You remain in control of your plan. You can check balances, change investments and run reports, all from your online dashboard.
Qualifying for a 401k Online Plan:
In order to qualify for an online 401k plan, your company typically needs to have 100 or fewer employees. Any more than that and you will probably want to set up a traditional 401k through an investment company. You can be a sole proprietor, a partnership or a corporation and be eligible to set up a 401k plan.
To set up a 401k plan online, you will need to provide the following information to the management company:
- Your business’s Tax ID Number (TIN)
- The names of your employees
- The Social Security Numbers of your employees
- Your employees’ estimated yearly salary
- Your employees’ dates of hire
- Your employees’ birth dates
You will be required to furnish other information during the setup process, but you will be notified of the information you need as it arises. Moreover, it is important to note that by law, all employees must be offered the opportunity to participate in your 401k plan. However, you can establish service and age requirements that your workers must meet before they can participate. You can also exclude classifications of employees from participating as long as the exclusions are not discriminatory.
If you are looking for a way to compete with large companies by expanding your overall benefit package, you will want to consider an online 401k. Although there are some fees associated with this decision, the advantages you gain by offering this type of retirement plan to your employees will more than make up for your expenses.
Image courtesy of FreeDigitalPhotos.net