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Can a LLC Set Up a 401(k) Plan?

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An LLC is a limited liability company. These business structures are set up to allow small companies, including one-person companies, to form a corporation without the complexities involved with forming a corporation under the ordinary structures.

Like all other businesses, an LLC may set up a retirement plan for its employees, including a 401(k) plan.

 

Set Up a 401(k) Plan

 

Significance

By setting up a 401(k) plan, you are able to take advantage of a popular retirement plan. This plan is tied to the company, and contributions are made directly from earnings of the business that are apportioned to you as pay.

This money is contributed on a pretax basis, just like other 401(k) plans. Your employees may also contribute to the plan in the same way you contribute to the plan.

 

Features

401(k) plans are not restricted very much in terms of what they can invest in. While many 401(k) plans restrict their investment choices to mutual funds, a 401(k) plan can invest in company stock and even precious metals.

You also get to set the rules for 401(k) plan loans as well as the approval process. You may set up the plan to match all employee contributions to the plan, contribute a fixed dollar amount every year, or you may forgo company contributions altogether.

 

Benefit

Since the 401(k) can invest in a variety of investments, it is a versatile investment account for you and your employees. Account loans allow access to the money in your retirement plan when you want or need it most.

Additionally, the 401(k) plan can be rolled into another plan if you ever sell the company. Your employees may also be incentivized to contribute to the plan if you make matching or flat rate contributions to their retirement accounts.

 

Consideration

Although the 401(k) plan is one option, it isn’t the only option. If you operate a small company, you might also want to consider a SEP or SIMPLE IRA. A SEP is a Simplified Employee Pension and a SIMPLE is a Savings Incentive Match Plan For Employees.

Both of these retirement plans allow you to contribute to your employees’ retirement. For the SEP, the annual contribution is mandatory and based either on 2 percent of the employee’s annual salary or $1 for $1 match up to 3 percent of the employee’s annual salary. A SIMPLE does not require a contribution from the company.

The advantage of the SEP and SIMPLE is that they are less expensive to maintain from an administrative standpoint than a 401(k) plan.

 

Consider a Roth 401(k)

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