A 401(k) is an employer-sponsored retirement plan in which employees’ money is invested while they are working, and then later withdrawn at the time of retirement. In these difficult financial times, when employers cannot always afford to pay top dollar to their employees, an employer-sponsored 401(k) can be quite attractive. And while 401(k) plans are often seen as being significantly beneficial for employees as a means to grow their savings, employers can also benefit from their use. In fact, in some cases, the costs associated with setting up a 401(k) can be tax deductible, thereby lessening the financial burden of implementing this type of program. Currently, there are five types of 401(k) plans in existence. These include the Self-employed 401(k), SEP-IRA, SIMPLE IRA, Keogh, and Individual Defined Benefit Plan. Traditionally, Self-employed and Keogh 401(k) plans are designed for companies without any employees, with SEP and SIMPLE IRAs for larger corporations with many workers. Finally, Individual Defined Benefit Plans are intended for use by small companies with fewer than four total employees. Before starting one of these plans, employers should be aware of the number of current and projected employees, yearly costs, and deadlines to open and contribute to the plan.

There is no question that participation in a 401(k) plan can have significant financial benefits—especially for small business owners. Individuals who are unfamiliar with the set-up and development of these types of plans may want to consider working with a financial planner or economist to ensure optimal results in the development of this type of program. These professionals should not only be able to provide advice as to the best type of 401(k) plan, but can also offer on-going financial assistance to small business owners. With a little luck, contributions that are made to a 401(k) plan can result in financial stability and security during retirement. 401(k) holders should remember that while investment in this type of program can be beneficial, the use of more traditional savings plans are still recommended.