It may seem like a paradox to offer a retirement plan at a startup. Startup ventures are inherently risky. Will it be worth the extra paperwork and cash to fulfill your end of the bargain? And will employees want to stick around long enough for vesting?
The truth is, it is worth it to offer some form of retirement plan to your employees. Here’s why.
Attract the Best Talent
Savvy entrepreneurs know how important it is to save for retirement. If they see that a new company is forward-thinking enough to offer a retirement plan, that’s a sign that the startup isn’t just a flash in the pan. This makes retirement plans a powerful incentive for people who think about the future, not just the here and now. And in the flighty world of startup hiring, finding future-minded talent is a big advantage for employers.
Even candidates who may not stay for the long haul will be attracted to a company that offers a retirement plan. As long as an employee is able to roll over their funds into another retirement account (and in most cases they can), there’s no downside for the employee to open a retirement account at a startup. If they leave in a year or two, they can just roll the money into a Roth IRA or some other retirement account and keep growing their money for retirement.
Take Advantage of Tax Benefits
Startups also get some powerful tax benefits for offering a retirement plan. In fact, you can claim a $500 credit on the costs of administering a plan for the first three years under the Retirement Plans Startup Costs Tax Credit. This IRS credit will pay for SEP-IRAs, SIMPLE IRAs and some 401(k) plans. Claiming this credit can relieve some of the worry and cost of paying for the plan. Once the three years of claim eligibility have passed, you can deduct the administration costs from your taxes.
Secure Your Own Retirement
Finally, you need to consider your own retirement. It’s all too tempting to let everything else surrounding your startup take your mind off the future. But if you neglect to set aside money for your own retirement, you’ll be doing yourself a disservice. If you don’t have a plan for your employees, at least have a plan for yourself that’s handled by your startup. You’ll be able to claim the tax credits and have peace of mind knowing your own future in good order. There are a number of investment books on the market that may provide the information you need to get started.
If you don’t know what kind of retirement plan you should offer, you’ll need to do some research. You can get a basic overview of the types of retirement plans for small businesses, as well as a small quiz to help you decide which plan might be best for your company. Talk with your accountant as well, so you can learn all the details about your chosen plan and how it will affect your business. Once the plan is in place and you start advertising it as part of an employment plan in job listings, you may be pleasantly surprised at the quality of your candidates, and you’ll be on good footing to make your startup a success.