February 04, 2025
401(k) Plans for Business Owners 101

While you are probably familiar with the benefits of investing in a 401(k) retirement plan for your personal finances, did you know that implementing an employee retirement plan for your small business can lead to year-over-year tax deductions and help you retain staff? While this may come with contribution costs for your team as well as administrative fees, with careful planning, we believe you can shift money that would have gone to the government back to you and your employees instead.
401(k) plan basics for business owners.
Under current tax laws, an owner aged 49 or younger can contribute up to $70,000 pretax for 2025. For those over 50, they benefit from a $7,500 catch up, bringing this total to $77,500. Individuals aged 60 to 63 can make an additional deferral of $3,750. The administrative expenses of a 401(k) plan are reasonable and are a deductible business expense. During the first three years of the plan, owners can get up to a $5,000 tax credit.
How can your staff benefit from a 401(k) plan?
For your employees, there are three “buckets” to a 401(k) plan:
401(k) salary deferral: This is an amount a participating employee can choose to defer from their paycheck into the 401(k) plan. The IRS maximum for 2025 is $23,500 for individuals under 50. Like practice owners, those 50 or older can also contribute an additional $7,500 as a catch-up contribution and individuals aged 60 to 63 can contribute an additional $3,750 pre-tax.
Safe harbor: This contribution is made by the business and is always 100% vested, meaning if a team member leaves, they take whatever is in this bucket. There are two types of safe harbor contributions:
- Some practices utilize a 3% safe harbor ─ each eligible participant receives 3% of their compensation regardless of whether they defer.
- Others may utilize a 4% match – a participant would need to contribute 5% of their pay to receive the full 4% match.
Profit sharing: With this discretionary contribution made by the business, a third-party administrator (TPA) will calculate this contribution each year. They determine how much the owner can contribute for themselves as well as the required staff contribution.
How do you explore a 401(k) plan for your small business?
Meeting with a professional such as a wealth advisor or financial planner can help start the process. They will spend time talking with you about what you want to accomplish, learn more about your team, and review your cash flow to assess how much discretionary cash is available for a retirement plan.
Next, your TPA will develop illustrations showing how much you could contribute and the amount you would need to give your team. Their responsibilities are to keep the plan in compliance with the IRS and Department of Labor (DOL) rules and regulations, prepare the tax return for the 401(k) plan, and ensure your plan is not discriminatory. Ideally, a TPA’s fees are transparent, and they are not intertwined with any sort of investment strategy.
401(k) balances can grow from contributions from either the participant or the company. Balances may also grow from the investment performance. Since hiring an investment advisor will be part of the process of implementing a 401(k) plan, it’s important to perform due diligence to ensure you understand how they are paid and what internal fees are associated with their investment selections.
While a well-executed 401(k) plan can be a great tax deduction as well as a potential benefit for your team, we believe not all platforms are created equal. In our view, it’s worth your time to work with an advisor on defining your objectives and implementing a team that will meet your 401(k) goals. If you would like to explore strategies to build a retirement plan for your business, our team would love to help! Schedule a conversation with a Practice Integration Advisor today!
This presentation is for informational purposes only. The information provided does not purport to present a complete picture, but Focus Partners believes the information is representative of issues and needs facing some clients and why they may seek this service. Nor should it be construed as, specific investment, tax, or legal advice. Individuals should seek advice from their wealth advisor or other advisors before undertaking actions in response to the matters discussed. No client or prospective should assume the above information serves as the receipt of, or substitute for, personalized individual advice.
This communication represents the opinions of Focus Partners. This communication is prepared using third party sources. Focus Partners considers these sources to be reliable; however, it cannot guarantee the accuracy or completeness of the information received. Focus Partners does not undertake an obligation to update the information herein at any time after the date of publication. Numerous representatives of Focus Partners may provide investment philosophies, strategies, or market opinions that vary. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives.
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About the Author

Katie Collins
Practice Integration Advisor