Is setting up an independent 401(k) plan always better than an IRA for a small business?

When setting up a small business with only a few partners and employees, is it better to set up independent 401(k) plans for everyone or should they each open an IRA account suitable for their situations? If the 401(k) option is best, what kind of plan should be chosen or offered? If IRA's, Roth or Traditional? How can you set these up so that they are immediately available for contributions to be made?

401(k), IRAs, Small Business
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August 2017
60% of people found this answer helpful

Great question and one asked by many businesses!

In most cases a 401(k) is not a great solution.  It can work very well if all the people within the company are owners and their family members.  In this instance you can set up an Individual or Solo (k) and avoid much of the expense associated with a 401(k) Plan.

Shoudld you not be in a position to set up a solo or individual (k) because some of the employees are not owners or their immediate family, then i would look to a SIMPLE IRA.  There are pro's and cons to this typ of plan and you read about the plan here: SIMPLE IRA Tutorial

IRA and Roth's are typically not set up by companies, these are not corporate plans.  Based upon your question I do no think these would assist you in reaching your goals.

I highly recommend you review the two options above and see which is best suited for you and you company.  Best of luck in navigating this decision.

August 2017
August 2017
August 2017
August 2017