3 Types of Retirement Plans for Growing Businesses
By Robert P . Russo CPA
When startups launch , their focus is often on tightly controlling expenses . Most need to establish a brand and some semblance of stability before funding anything other than essential operating activities .
For companies that make it past that tenuous initial stage , there comes a time when they must loosen up the purse strings and start investing in , among other things , their employees . One way to do so is to sponsor a retirement plan . Offering this fringe benefit lets staff know the business cares about them and their financial futures .
Has your company reached this point ? Or is it almost there ? If so , let ’ s review three of the most popular plan types that growing businesses should consider .
1 . Traditional 401 ( k ) Plans
These are available to any employer with one or more employees . Under the plan , participants are given accounts that they own . This means their contributions are immediately vested , and they retain ownership even if they leave their jobs .
Participants typically contribute via pretax payroll deductions , which reduce their taxable income . Distributions , however , are taxable .
For 2025 , 401 ( k ) participants can contribute up to $ 23,500 ( up from $ 23,000 in 2024 ). Those age 50 or older by the end of the year can make additional “ catchup ” contributions of $ 7,500 ( the same amount as in 2024 ). Your business may also opt to contribute to participants ’ accounts under a vesting schedule of your choosing . 2025 the total combined limit for employee and employer contributions is $ 70,000 . Within limits , your company can deduct contributions made on behalf of eligible employees .
Many companies ’ plans now have Roth 401 ( k ) features . This means participants can choose to make some contributions with compensation that ’ s already been taxed . The upside is that qualified distributions are taxfree .
Establishing a 401 ( k ) plan typically requires , among other steps , adopting a written plan and arranging a trust fund for plan assets . Annually , employers must file Form 5500 and perform discrimination testing to ensure the plan doesn ’ t favor highly compensated employees . However , with a “ safe harbor ” 401 ( k ), the plan isn ’ t subject to discrimination testing . There are also several other 401 ( k ) variations worth considering .
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