Top Three Myths That Stop Business Owners from Setting Up a 401k

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Many business owners open their doors with the belief that they will control their future and increase the likelihood of being able to enjoy a comfortable retirement with profits from the sale of a business. But when business owners are in the thick of running their businesses, many overlook another excellent opportunity to improve their retirements: setting up a 401k. 

There are several benefits to setting up a 401k. First, making regular contributions can reduce personal tax liability, which allows business owners to keep more of their hard-earned profits. Second, offering a 401K to which employees can contribute also allow team members the same opportunity to reduce their taxable income – which makes a 401k a driver of both talent recruitment and retention. One survey found that 40% of employees who work at businesses that don’t offer a 401k would consider leaving their current job for one that did offer a 401k.

 But even with these benefits, only about half of businesses with 50 or fewer employees offer 401k plans. Often, this is due to misconceptions about the realities of setting up and managing a plan. Here are three of those myths – plus the realities of what’s actually involved.  

  • Myth: Retirement plans are too expensive for businesses with limited funds designated for employee benefits.
  • Reality: The cost of offering a 401k plan is often relatively low.

 A 2017 survey found that 37% of business owners who don’t offer 401k plans have done so due to the perception of high costs. On one hand, it is true that smaller-sized businesses may face higher management fees than firms with 100 or more employees enrolled in a 401k plan. But at the same time, overall costs associated with setting up and managing a plan can actually be quite low.

 Additionally, offering a 401k to employees may result in reduced costs in other areas. Businesses that do offer a plan may be able to make more compelling offers to new hires and retain top talent for longer, thereby reducing the significant costs associated with recruiting new talent. 

  •  Myth: Employees won’t participate in the plan unless the business can match every deferral dollar for dollar, and that’s too expensive.
  • Reality: Though offering a matching program increases participation, many employees will participate even when it isn’t offered.

 One of the biggest factors to consider when offering a 401k is deciding how much your firm can contribute to employee retirement. Making dollar-for-dollar matches to employee 401k contributions is often one reason that employees participate, but it also requires a commitment that takes away from the firm’s bottom line. Business owners may assume that without this one-to-one match, few employees will participate so it may not be worth the time and energy to set up.

 The reality is that many factors affect employee participation in 401k plans, including age, education level, and whether or not employees have children. Research has found that offering a match increases participation by about 15 percentage points, but even smaller matches have large impact in participation.

  •  Myth: Setting up and running a 401k will take up a lot of my time.
  • Reality: Enlisting the help of a strategic advisor and a technology platform to manage contributions allows for easy, efficient plan management.

 For many business owners, setting up a retirement account may be a task that continues to fall to the bottom of their to-do list. There can be an overwhelming amount of choice with selecting the right funds and asset allocation. Business owners with a background outside of the financial services industry may decide not to set up a 401k because they assume doing so will be a complicated process.

 In reality, setting up a 401k doesn’t have to be overwhelming. An increasing array of user-friendly online options allow business owners to monitor and make contributions to their own and to employee retirement accounts in a matter of minutes. Business owners who enlist the assistance of strategic advisors can reduce their workload even further while also increasing the likelihood that their 401k funds will be invested strategically.

 Need help setting up a 401k?

 The Sharp Financial Group has advised many clients on how to minimize their tax burden and increase their earning potential over time, including corporate 401k planning. To learn more about what’s involved, please contact us to speak with a representative today:


Sharp Financial Services, LLC d/b/a The Sharp Financial Group (“Sharp Financial”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Sharp Financial and its representatives are properly licensed or exempt from licensure. 

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor. 

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

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