Ninety-nine percent of businesses with over 500 employees provide 401(k) plans or similar retirement benefits to their employees, however, small businesses are more reluctant to offer one if it is not required. In fact, research shows that with businesses that have less than 50 employees only about 24 percent offer a 401(k) plan. “Larger employers have more generous benefits all the way around. That’s what you’re seeing there,” offers Jean Young, senior research analyst in Vanguard’s Center for Retirement Research.
Yet at a time where pensions are a thing of the past, a company not offering a 401(k) plan could mean a number of employees at these smaller companies may not be prepared for retirement. However, some experts believe that no business is too small for a retirement plan. They point out that high contribution limits, tax benefits, emergency access to funds through a loan, Roth 401(k) options, and other opportunities and benefits can make a big difference for even the smallest business. There are also low-cost approaches and providers that specialize in servicing small businesses – and that do a good job by keeping administrative
There are also low-cost approaches and providers that specialize in servicing small businesses – and that do a good job by keeping administrative costs down and help control the costs paid from the employees’ account balances.
On the other side of the coin, if you work for a small company that only offers investments in company stock or certificates of deposit, you may find you would prefer to put your money in an individual retirement account (IRA) instead of a 401(k) so you can choose your own investments. You are also limited on when you can withdraw money: Once money has been contributed to a 401k plan, you can only withdraw it under extreme circumstances before you are 59 1/2 years old. In order to take an early withdrawal, you must have terminated your employment with the company, have a financial hardship or have suffered a permanent disability.
And for future retirees, relying on a pension or Social Security as a main source of income is no longer an option. Social Security income is designed to supplement a retirement account, and according to the Social Security Administration’s website, by 2033, the payroll taxes collected will be enough to pay only about 77 cents for each dollar of scheduled benefits.
Every business should be able to afford some type of 401(k), so take that into consideration if you are thinking about changing jobs or currently work at a company that does not currently offer one. For more information on investing for your retirement, visit us at mooneylyons.com or call us at 1.847.382.2600. We can analyze the needs you have now and anticipate those you’ll need in the future.
Iacurci, Greg. Small businesses less generous with 401(k) contributions:Vanguard. Investment News. 29, June 2016.
Robertson, Stuart. Three Myths from Keeping a Small Business from Starting a 401(k). Forbes. 25, Sept. 2013.
Kennan, Mark. Disadvantages of 401 (k) plans. eHow.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss.