By:Stuart Robertson, Contributor to Frobes
The future grows increasingly uncertain. Prepare for it. Here’s how.
Imagine waking up on your 70th birthday in 2030 — not to go play golf or to spend time with your grandkids as you intended — but to go to work at a business because you need the income. Oh, by the way, it’s your business and your once high performing business is facing tough times with profit margins on the decline.
Imagine that in 2030 that government programs have changed too. Social Security is greatly reduced and government benefits such as Medicare also are a far cry from what they are today. Not exactly the American dream most small business owners envision when they think about their golden years but, sadly, a growing concern for the 80 percent of small businesses without retirement plans.
Now consider that this isn’t just a nightmare facing small business owners, but this could be the new reality for the nearly one-third of Americans who either own or work for a small business and don’t have access to a 401(k) plan.
A Plan for Financial Freedom and the American Dream
Fortunately 401(k)s offer a simple and affordable way to bring the dream of retirement and financial well being back to reality. These plans have been around for nearly 30 years and, while for a long time only found in large companies, have recently gained wider acceptance by small businesses thanks to the availability of low-cost offerings now in the market. Small business owners have also become savvier about the high contribution limits and tax protection 401(k) plans can provide to their bottom line.
In fact, it’s never been easier for a small business owner to purchase a plan and get it started. Here are six steps to setting up a plan for your business:
1.Decide which 401(k) plan type is right for you: There are three main types of 401(k) plans for business owners to consider. The most popular is a Safe Harbor 401(k) which enables them to contribute the maximum allowed without restrictions in exchange for providing a matching contribution to their employees’ accounts. A traditional 401(k) plan gives owners more options regarding employer contributions, vesting schedules and even the choice to not match at all. Advanced profit sharing plans are a favorite of partnerships such as legal firms that reward employee contributions differently based on employee groups (e.g. partners, lawyers, and staff). Owners who are self-employed can even setup an Individual 401(k).
2.Review providers and purchase your plan: Some providers have made buying a plan simple. It takes all of five to ten minutes to select the plan type and purchase a plan online. There are a few things to consider as you select a provider. You’ll want to ensure employee fees are kept under one percent and your provider offers the investment and design expertise that minimizes your administrative hassles.
3.Select plan features that best fit your needs: After you purchase the plan, you’ll determine what features to make available in the plan and upload employee information. Key features that most include are aRoth 401(k) option, loans, automatic enrollment of employees, employee eligibility requirements and specifics around any employer matching contributions.
4.Rollout your 401(k) plan to your employees: A week or two after you select plan features, your company’s 401(k) access will be ready to roll out to employees. Your provider will provide you with an email to send to your employees announcing the details on how to access their account from the web and 800 numbers for customer care. Many will also offer employee rollout meetings to better educate your staff on 401(k) benefits and answer questions. And for your office administrator (or you if one and the same), your 401(k) provider will ensure he or she knows how to work with your payroll process and/or provider. Once you’re setup, it should only take five to ten minutes each payroll to manage your employee 401(k) contributions on-going.
5.Make your contributions automatic each payroll: In the employee announcement, there will be link or instructions for how each employee — including the owner(s) — can select the percentage of salary to contribute from each paycheck, choose the funds to invest in, and determine a beneficiary. Wondering how much to set aside? Most experts recommend 10% of salary as a good starting point. It’s a great way to pay yourself first and save some on personal taxes this year too.
6.Take advantage of annual tax credits and deductions for your business: When tax time rolls around, don’t forget to receive your business tax credits and deductions. With the exception of Individual 401(k) plans (those for owner-only businesses), companies with fewer than 100 employees starting their first 401(k) plan qualify to receive up to $500 tax credit each year for the next three years to offset setup and administrative costs. That’s $1,500 in savings. Also, if you decide to provide a match or other employer contributions to employees, you may deduct these expenses for your business too.
Once your 401(k) plan is up and running, review your own account once or twice a year to ensure your investment direction still aligns with your goals. You’ll also need to complete a relatively low-maintenance year-end checklist with your provider to ensure your plan is fully compliant with government rules. Other than that, your plan will run in a pretty automated fashion and help you and your employees get on track to meet your financial goals.
Source:http://www.forbes.com/sites/stuartrobertson/2011/10/03/six-steps-to-setting-up-a-401k-account-and-why-it-matters/