Benefits to Business Owners of adding a new Retirement Plan

I recently graduated from the Goldman Sachs 10,000 Small Businesses (10KSB) program. Launched in 2009 by Goldman Sachs and the Goldman Sachs Foundation, this initiative supports small business growth in the U.S., U.K., and France. It offers free business education, access to capital, and support services to help entrepreneurs scale their businesses and create jobs. The program has graduated over 16,000 participants across all 50 U.S. states, Washington, D.C., and Puerto Rico as of 2024.

Delivered in partnership with Babson College (ranked U.S. school for entrepreneurship), the program offers a 10 to 12-week curriculum covering critical business skills such as:

Financial management (e.g., understanding financial statements, forecasting), marketing and sales (e.g., targeting customers, digital strategies), strategic planning and growth strategies, leadership and employee management, and operations and process optimization.

In visiting with many of my former cohorts and now alumni, I was surprised to find that many of them had no plans for retirement. More importantly, they have no retirement plans for themselves, their families, or their employees. I explained to many of them that the Department of Labor (DOL) and bipartisan members of Congress cannot agree on much, but they can agree that Americans do not save enough for their retirement. This is the reason that the Secure Act and the Secure Act 2.0 were adopted to help employees save and employers achieve benefits for offering such plans.

Most plans, if designed correctly, can not only benefit the employees of these companies but, most importantly, benefit the business owners and their families. To help, I decided to write a brief blog about the advantages and benefits of these plans.

Adding a retirement plan to a business’s benefit package can provide several advantages for both the business owner and employees. Here are the key benefits for a business owner:

1. Tax Advantages: Contributions to retirement plans, such as 401(k)s or SEP IRAs, are typically tax-deductible for the business, reducing taxable income. Additionally, the business owner can contribute to their own retirement account, lowering personal tax liability.

2. Attract and Retain Talent: Offering a retirement plan makes the business more competitive in hiring. Employees value benefits that support long-term financial security, and a robust plan can help attract top talent and reduce turnover.

3. Employee Productivity and Loyalty: Employees with access to retirement benefits often feel more financially secure, which can boost morale, engagement, and productivity. A retirement plan can foster loyalty, as employees are more likely to stay with a company that invests in their future.

4. Owner’s Retirement Savings: The business owner can save for their own retirement through the plan, often with higher contribution limits than individual retirement accounts (e.g., a 401(k) allows up to $23,000 in employee contributions for 2025, plus employer contributions). By adding a profit share, they can contribute even more. By adding a match, even more. And by adding a Defined Benefire plan, even more.

5. Flexible Plan Options: Business owners can select plans that suit their budget and business size, such as SIMPLE IRAs for small businesses or 401(k) plans for larger ones. Some plans have low administrative costs and minimal setup requirements.

6. Potential Tax Credits: Small businesses may be eligible for tax credits to offset the costs associated with establishing a retirement plan. For example, the IRS offers a tax credit of up to $5,000 for the first three years to cover startup costs for new plans (subject to eligibility).

7. Enhanced Company Reputation: Offering a retirement plan demonstrates that the business values its employees’ well-being, thereby improving its reputation among customers, partners, and the broader community.

8. Matching Contributions as a Benefit: Offering employer-matching contributions can incentivize employee participation while reinforcing the company’s commitment to employee welfare, without requiring a large financial commitment (e.g., matching 3-4% of the employee's salary).

Considerations:

• Cost: Administrative fees and matching contributions can be expensive; therefore, owners should carefully evaluate plan options.

• Administrative Responsibility: Some plans require compliance with IRS and Department of Labor regulations, which may involve time or hiring a third-party administrator.

• Employee Education: To maximize the plan’s value, owners may need to invest in educating employees about how to use it effectively.

Next Steps:

• Research plan types (e.g., 401(k), SEP IRA, SIMPLE IRA) to find the best fit for your business size and goals.

• Consult a financial advisor or plan provider to understand costs, tax benefits, and compliance requirements.

• Check eligibility for tax credits at irs.gov or with a tax professional.

• Please feel free to call or contact me with any questions. Happy to help and explain further. 219-246-2516 is the office, and greg@farrallwealth.com is the email.