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401(k) for startups
A 401(k) plan offers savings and investment opportunities to employees on retirement. Employers provide it and work by automatically withdrawing a predetermined amount from an employee’s paycheck and investing it in an account chosen by the employee. This plan also includes tax benefits. 401(k) administrators manage this process for all involved parties. While a traditional 401(k) allows you to make contributions before tax is levied, it is the reverse with a Roth 401(k).
If you want to attract the best employees to your startup, your org is likely to benefit from incorporating 401(k) plans. With 401(k) plans to gain ground with startups and tech-based companies, it is an expectation from new hires that this benefit will be offered -- especially with startups that have more than 100 employees. The SECURE Act makes establishing retirement plans easier for startup founders by introducing lesser prices and ease of administration.
Cost to set up 401(k)s for startups
The cost to set up a 401(k) can be calculated by looking at the following:
- A startup cost that covers setting up the 401(k) plan. This fee can be expected to range from $500 to $1500. The per-participant charge may vary from $15 to $40 per participant, paid quarterly.
- Optional 401(k) matching cost where employers match a portion of their employees’ contributions to a specific percentage.
- 401(k) plan administration fees include customer service, account management, trades, administrative fees, and additional charges that apply both to the employees and the startup (e.g., loans, emergency withdrawal, etc.).
- Some additional fees include filing Form 5500, which can cost something between $250 to $750 annually; a deconversion fee that ranges between $500 and $2000 when you are changing your 401(k) provider; and a plan restatement fee that comes up to around $400 for compliance updates.
It is essential for startups to fully realize what features of 401(k) software they need to pay for more products than warranted. 401(k) software should pay for itself in the time and labor it saves for manually administering the plan. Startups with fewer than 100 employees can subscribe to a Simple 401(k) plan which is exempt from nondiscrimination testing and requires employers to provide contributions to their employees’ 401(k) accounts immediately.
What criteria should startups evaluate before selecting a 401(k) provider?
1. How much the startup will pay per employee
The startup needs to analyze the plan’s per-participant or per-employee fee, in addition to its administration fees. Any 401(k) service provider must be affordable in terms of administration and per-employee fees and should have scope to accommodate more employees as the startup grows.
2. How easily can the 401(k) be integrated with payroll providers?
Integration with your existing payroll software is necessary for any 401(k) service provider. This allows your startup to reap maximum benefits from automating both payroll and 401(k) processes. Suppose the 401(k) service provider does not support easy integration with payroll software. In that case, the startup founder may waste an enormous amount of time manually entering data or maintaining deductions, which increases the risk for errors.
3. Investment options for the employee
It is always better to choose the 401(k) service provider that offers a variety of investment options to your employees. Incorporating a 401(k) is generally a big step for startups because they want to attract the best employees and retain them for longer. A 401(k) that offers a variety of investment options like policies for emerging economies, global exposure, and different kinds of securities and mutual funds is optimal. In addition, the investment options must be flexible and scalable according to the age of the employees, the positions they hold, etc.
Your 401(k) service provider must have built-in administrative compliance so that you can focus on growing your startup without having to worry about the legalities of your plan.
5. Payout on retirement
The ideal vendor for 401(k) management will allow employees to reap maximum profits at retirement, typically a result of the systematic contributions made to the employees’ accounts.
Top 401(k) providers for startups
Description: 401(k) management solution for investment opportunities through seamless integrations with 100+ payroll service providers.
Best for: Small and medium-sized startups
Pricing: Three plans are available at varied prices with ascending order of services provided:
Essentials: $120 per month base fee + $4 per eligible employee
Complete: $150 per month base fee + $6 per eligible employee
Concierge: $150 per month base fee + $8 per eligible employee
Evaluation of key criteria:
- Integration: 100+ integrations, including Gusto, iBranch, TruPay, PAYDAY, and ASTRA,
- Investment options for employees: Good support for investment opportunities available. Contact Human Interest for more information.
- Compliance: Yes, all-inclusive handling of compliance testing, IRS preparation, and filing.
- Pay on retirement: Flexible retirement plans are available to decide which is best for you, including traditional and Roth 401(k)s, Safe Harbor plans, and profit-sharing plans. Customized matching and vesting options are available for employers at no extra cost.
- Ease of use, for both staff and employers
- Automated contributions are available for each pay period, so errors are less.
- Value for money, particularly for startups, through transparent fees.
- Delay in solving problems leading to no concrete updates
- Average customer service
Description: Fidelity is a standard, a mainstream platform providing robust 401(k) services.
Best for: Small businesses and startups
Pricing: Pricing starts at a minimal rate of 0.53% for some startups, to over 1% of assets. The Fidelity platform accommodates costs for most plan sponsors under 0.75%. Additional viable options with Fidelity include $0-dollar trading commissions, $0 per stock, and $0.65 per contract on possibilities.
Evaluation of key criteria:
- Integration: Yes, several options provide full startup-oriented benefits, including payroll integration.
- Investment options for the employees: Several options are available such as fixed income, stocks, trading, health savings accounts, etc.
- Compliance: Contact Fidelity for more information.
- Pay on retirement: Fidelity guarantees a fixed amount of savings that increases with age and can go up to 10 times by age 67. The amount of savings depends on when the employee chooses to retire and what standard of life they expect post-retirement.
- Transparency of fee structure
- Exhaustive educational offerings in various formats such as articles, webinars, infographics, etc. A live interactive session called “Trading Strategy Desk” lets you pose trading-related questions to your professional coaches.
- Commission-free online trading for stocks, penny stocks, ETFs, and options, with only a minimal contract fee. Account fees, domestic wire fees, and check fees have also been eliminated.
- Additional features such as commodities and cryptocurrencies are missing.
- The customer must be a U.S. or U.S. territory (Puerto Rico, Guam, U.S. Virgin Islands) resident to open an account with Fidelity.
- The charges for a live person to assist you in placing a trade are among the highest in the entire industry (approximately $32.95).
Description: Investment platform provider for startups at much lower rates for the same services that large businesses receive.
Best for: Startups with few employees.
Pricing: Schwab IRA (including Traditional, Rollover, Roth, Roth Conversion accounts) and Education savings account, available at a minimum deposit fee = $0 SEP- IRA, SARSEP IRA, Qualified Retirement plan, Keogh, Companies retirement account, pension trust, Individual 401(k), and 403(b)(7) Accounts for a minimum deposit fee = $0.
Schwab One Organization Account needs a minimum deposit for account opening. Schwab can be contacted individually for more details.
Evaluation of key criteria:
- Integration: Several integration partners are available, including BNY MELLON, Folio Institutional, TradePMR, Salesforce, REDTAIL, ORION, S&P Global, and Smartleaf.
- Investment options for employees: Yes, available in the form of tradable securities such as stocks, bonds, mutual funds, futures, Exchange-Traded Funds (ETFs), and income products annuities.
- Compliance: Automation of a wide range of employee-monitoring tasks, security of SOC II reports, and more.
- Payout on retirement: Several options for savings on retirement are available, regardless of the employee’s age. The amount can be calculated using Schwab’s retirement savings calculator. Schwab helps employees work towards their retirement goals by providing them with a diversified portfolio based on their risk tolerance and also lets them rebalance it regularly. With Schwab’s intelligent portfolios premium, one-on-one guidance is available from a CFP professional so you can stay on track.
- Schwab’s brokerage customers with an account balance of $1000 or more have access to two professional trading platforms for free: Street Smart Edge and Trade Source.
- The Schwab mobile app (free to download) is easy to use. It provides instant access to bank account information and allows you to deposit checks, enter trades, and carry out a host of other related activities.
- Schwab has no account maintenance fee so that customers can save more for their investments. The $50 ACAT fee for moving your account to a different firm is almost the same for all brokerage companies as it is for Schwab.
- Schwab has high-interest rates for borrowed cash.
- The commissions to buy mutual funds are higher at Schwab than other similar platforms, which charge either less or nothing.
- Difficult for customers to find a local office.
Description: Full-service platform for 401(k) plans for startups.
Best for: Small businesses and startups.
Pricing: Three pricing plans for employers:
- Core: $49 per month + $8 per active participant
- Flex: $79 per month + $8 per active participant
- Max: $129 per month + $8 per active participant
Evaluation of key criteria:
- Integration: Includes Gusto, QuickBooks Online, Zenefits, Onpay, Rippling, Square Payroll, and ADP Workforce Now
- Employees’ investment options: Yes, including U.S... stock market, international developed equity, U.S... bonds, and real estate.
- Compliance: 5500 filings, 1099 R, nondiscrimination testing, ERISA 3(38) fiduciary, and ERISA 3(16) fiduciary.
- Pay on retirement: Contact Guideline for more information.
- Seamless, user-friendly interface
- Easily accessible and readable quarterly reports that allow you to analyze performance.
- Low-cost investment options are an added benefit for small businesses and startups.
- The absence of 2-factor authentication might be a security measure for the financial data that the platform holds.
- Absence of prompt customer service or contact number.
- Startups need more types of integrations.
Description: Digital platform that administers 401(k) plans with ease for your employees.
Best for: Small and medium-sized businesses
Pricing: An approximate cost is available for employers and employees and is subject to change depending on need.
Cost for employers: $2460 is the projected annual cost for a startup with 20 employees.
Cost for employees: $25 is the projected annual cost for $10,000 of an employee’s assets in a 401(k).
Evaluation of key criteria:
- Integration: Includes Zenefits, TriNet, Ceridian, Rippling, Apex, Paylocity, and Ascentis
- Investment options for employees: Robust, low-cost investments are available, with customizable investment solutions, including a socially responsible portfolio.
- Compliance: Complete handling of 401(k) compliance testing with Safe Harbor 401(k).
- Payout on retirement: Personalized retirement plans are available for employees, including advice on how employees can save and then optimize their savings with the correct type of account.
- Ease of use and maintenance
- Swift onboarding through constant guidance
- RetireGuide, Betterment’s official retirement planning tool, provides employees with holistic and personalized retirement planning advice.
- Everything relevant and essential is available to see and engage with on one single dashboard.
- No direct indexing is available
Learn more with us
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