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As a small business owner, what are the requirements for me to start a 401k or traditional IRA fund? How much do they cost to manage? I'm in the very early stages of my company right now but I would like to start thinking about a benefits package long term and would like to put some of my own personal earnings away for retirement as well.

Thanks!

  • Give some thought to where your company or small business might be headed. Some people set up very generous 401k and profit-sharing plans when the only participants (at that time) are the owner (and possibly spouse). But those generous "15% employer match for employee contributions" will come back and bite you in the anatomy as soon as the first non-family member is hired: the employer has to match 15% for the employee's contributions too, not just for the family's contributions. You can also start a SEP-IRA. As far as Traditional IRAs are concerned, it is none of your business's business. – Dilip Sarwate Sep 6 '14 at 2:51
  • That's a great thought! Thanks! What is a SEP-IRA? – noname Sep 6 '14 at 4:16
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Here is a nice overview from Vanguard on some options for a small business owner to offer retirement accounts.

https://investor.vanguard.com/what-we-offer/small-business/compare-plans

I would look over the chart and decide which avenue is best for you and then call around to investment companies (Vanguard, Fidelity, etc. etc.) asking for pricing information.

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OK, so first of all, employers don't set up IRAs. IRA stands for Individual Retirement Account. You can set up a personal IRA for yourself, but not for employees. If that is what you're after, then just set one up for yourself - no special rules there for self employment.

As far as setting up a 401(k), I'd suggest checking with benefits management companies. If you're small, you probably don't have an HR department, so managing a 401(k) yourself would likely be overly burdensome. Outsourcing this to a company which handles HR for you (maybe running payroll, etc. also), would be the best option. Barring that, I'd try calling a large financial institution (Schwab, Fidelity, etc.) for clear guidance.

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If you are the sole owner (or just you and your spouse) and expect to be that way for a few years, consider the benefits of an individual 401(k). The contribution limits are higher than an IRA, and there are usually no fees involved. You can google "Individual 401k" and any of the major investment firms (Fidelity, Schwab, etc) will set one up free of charge. This option gives you a lot of freedom to decide how much money to put away without any plan management fees. The IRS site has all the details in an article titled One-Participant 401(k) Plans.

Once you have employees, if you want to set up a retirement plan for them, you'll need to switch to a traditional, employer-sponsored 401k, which will involve some fees on your part. I seem to recall $2k/yr in fees when I had a sponsored 401(k) for my company, and I'm sure this varies widely.

If you have employees and don't feel a need to have a company-wide retirement plan, you can set up your own personal IRA and simply not offer a company plan to your employees. The IRA contribution limits are lower than an individual 401(k), but setting it up is easy and fee-free.

So basically, if you want to spend $0 on plan management fees, get an individual 401(k) if you are self-employed, or an IRA for yourself if you have employees.

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