Do your employees need a 401(k)?

With so much talk about Social Security and the need for retirement planning, there are a number of actions small business owners may take. Establishing a retirement plan for small business employees may sound like a huge undertaking. The reality is that setting up a 401(k) can be easier than you think.

A Safe Harbor 401(k) can be an appropriate solution for businesses with fewer than 100 employees. The Safe Harbor 401(k) Plan allows eligible employees to contribute a portion of their own salary to a retirement plan. Employers contribute either matching or non-elective amounts to the plan on behalf of eligible employees.
Both employer and employee enjoy federal tax advantages of contributing. Those advantages include:

· Employer contributions are tax deductible for the employer -- up to 25% of compensation of all participants.
· Employee elective deferrals are excluded from the employee's income for Federal Income Tax purposes.
· Tax-deferred growth potential is possible -- any investment earnings grow tax-deferred until withdrawn.

One attractive advantage of establishing a Safe Harbor 401(k) plan is that discrimination testing of employee elective deferrals or employer matching contribution limits is not needed. Additionally, each plan participant or beneficiary can request an easily understandable summary plan description within 90 days after they become eligible. A summary annual report may be requested each year within 7 months after the end of each plan year.

There are many reasons you may want to begin a retirement plan for your employees. The ease at which you can establish a Safe Harbor 401(k) could make it an appropriate choice for your small business.