April 1, 2021 Are you a small employer looking for a retirement plan for your employees? A 401(k) plan allows participants to defer part of their salary into the plan and allows employers to make contributions on behalf of employees. Will a 401(k) work for your business? Let's take a look. Key Features Available to all employers Elective salary deferrals aren't taxed until distributed Safe-harbor 401(k) plans may avoid testing Automatic enrollment can increase participation Employer contributions are tax deductible Tax credit for starting a new plan or adding an automatic enrollment feature Employee salary deferrals may be eligible for the Saver's Credit Eligible employee You must generally include any employee (including yourself) in the plan who: Is at least age 21, and Has performed 1,000 hours of service. You can choose to use less restrictive eligibility requirements. Contributions to a 401(k) plan A 401(k) plan accepts contributions from both employers and employees. Eligible employees can make salary deferral contributions up to the lesser of 100% of their compensation or $19,500 for 2021, plus another $6.500 if age 50 or over. Employers can: Match employee salary deferrals using a fixed dollar amount or a specified percentage of compensation, Make a non-elective contribution of an equal percentage of eligible employee's compensation, even if they chose not to defer into the plan, or Make no contribution (unless required for a safe harbor 401(k) plan or to meet top-heavy minimum contributions). Matching or employer contributions must be made by the due date (including extensions) of your federal income tax return for the year. Employee contributions should be deposited using the Department of Labor 7-day safe harbor rule for depositing salary deferrals. Contributions to a 401(k) plan are limited: 25% of each employee's compensation, or $58,000 for 2021 (subject to cost of living adjustments). Setting up a 401(k) plan Contact a financial institution or your tax professional for help to set up your plan. Complete and sign a financial institution's IRS pre-approved 401(k) document or an individually designed plan document. Distribute copies of the plan document or Summary Plan Description to employees. Resources Publication 3998, Choosing a Retirement Solution for Your Small Business PDF 401(k) Information Webpage Publication 4222, 401(k) Plans for Small Businesses PDF Publications 4674, Automatic Enrollment 401(k) Plans for Small Businesses PDF Resources for Small Employer Plans