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How do I set up a 401k plan for my Small Business?

Home » Small Business » Small Business 401k » How do I set up a 401k plan for my Small Business?

If your small business is considering opening a 401k plan, there are several preliminary questions that it should answer:


  • Will you outsource or will you administer the plan yourself? 401k plans require a considerable amount of knowledge and research in investments. Do you feel that you are capable of doing this yourself or do you want to hire an outside company, such as a bank, mutual fund provider, or insurance company, to do the dirty work for you?
  • What kind of 401k plan do you want to offer? You can offer a traditional 401k plan, or a SIMPLE plan with less flexibility, or something in between the two. In addition, you should decide if you want to offer a thrift plan (traditional, with regular contributions) or a bonus plan (profit-sharing, one-time lump sum contributions).
  • What are the terms of the plan? There are several considerations to consider in the specifics of your plan. Which employees will be eligible for the plan? Will your company match their contributions? Will the employees have access to the funds at any time? Is there a maximum amount of contributions? Can they change their contribution level at any time?

If you are going to administer the 401k plan yourself, make sure that you are familiar with the federal requirements for these type of plans. For example, if you offer a plan, you are required to file regular reports, set maximum employee contributions at $14,000 (in 2005), and provide for joint and survivor annuity. Review these requirements on a regular basis to ensure that you meet federal standards for a 401k plan.



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