Is My Business Ready to Offer 401(k) Employer Contributions (Match or Non-Elective Contributions)?

More and more states are mandating businesses to offer employee retirement plans, but taking it a step further by adding employer contributions is an added generosity. These can be either a match or a non-elective contribution (funds you contribute even if your employees don't).

How do you know if you’re ready to add an employer match or a non-elective contribution? In this article, I’ll tell you what our experts say.

At CSI Accounting & Payroll, we’ve provided financial advisory services to small business owners for 60 years. We’ve been asked quite a bit about 401(k) employer contributions, such as:

• How do I start a 401(k) with an employer contribution?
• What if I already offer a 401(k) but want to add an employer contribution now?

Starting a 401(k) With an Employer Contribution

Don’t offer a 401(k) yet? Starting a retirement plan with a match or non-elective contribution is a big jump, but if you’re ready to go all in and ask us what to do, here’s what we’d tell you:

Retirement plans and employer contributions are typically handled through a 401(k) management company. CSI is happy to refer you to one of our amazing retirement plan partners!

Our partners would start by finding your ideal retirement plan. It might not be a 401(k)! However, assuming you do start a 401(k), you’d decide between a match or non-elective contributions. (Remember, not all 401(k) plans require an employer contribution.)

What are the signs that you’re ready to start a plan with an employer contribution?

• It fits your budget. You must consider the cost of your contributions, plus the potentially large fees associated with just offering a 401(k).
• You want to attract and retain the best-quality employees. Offering a 401(k) is one thing, but adding one with an employer contribution is even more appealing.
• You have very high profits and want to minimize your tax liability. Your employer contribution is generally tax-deductible to your business and grows tax-deferred inside the plan.
• You, the owner, want to maximize your own retirement savings. You can also use the 401(k) plan to save for your retirement.

Please consult an accountant for professional tax strategy. Check out CSI’s monthly accounting service to legally minimize your tax liability!

Adding Employer Contribution to an Existing 401(k)

If you already have a 401(k), then you’re a step ahead! If you asked CSI about adding an employer contribution, we’d still send you to our retirement plan partners to confirm a 401(k) is still the best plan for you. If it is, they’d transfer your plan to be managed by our partners.

At that point, they’d help you determine whether you’d like to add a match or non-elective contributions.

What are the signs that you’re ready to add an employer contribution to your existing plan?

• It fits your budget. You already pay the fees to just offer a 401(k), so adding an employer contribution doesn’t seem so costly in comparison. It’s especially affordable if you don’t have many employees or contribute a very small amount.
• You want to attract and retain even higher-quality employees. You’re already making an attempt at this by offering a 401(k), but have employees or applicants asked why you don’t offer an employer contribution? Adding one makes your benefits even more competitive.
• Your plan already offers profit sharing. I see employer contributions as cake and profit sharing as icing. So, if you already offer profit sharing, adding a match or non-elective contribution is the next logical step.
• You have very high profits and want to minimize your tax liability. Your employer contribution is generally tax-deductible to your business and grows tax-deferred inside the plan.

Please consult an accountant for professional tax strategy. CSI’s monthly accounting service can legally minimize your tax liability.

Get the Most Out of Employer Contributions!

Now that you know how CSI’s partners would advise businesses looking to either start a 401(k) with an employer contribution or add one to an existing plan, are you ready to connect with our retirement plan partners and check out CSI’s monthly accounting services?

Let’s minimize your tax liability and pump up your employee benefits! To see if we can be a good fit for your business, click the button below for a free consultation:

Not ready to talk? That’s okay! First, learn what your monthly accounting fee may look like by clicking the image below: