What is the difference between Roth and pre-tax contributions?

The difference between Roth (after-tax) and pre-tax contributions is when you pay taxes. With Roth contributions, you make contributions with after-tax dollars. Once the account has been open for 5 years, future withdrawals of both contributions and earnings are tax free unless you withdraw prior to age 59½. With pre-tax contributions, you get a tax break now, reducing your current taxable income. Contributions and earnings grow taxdeferred until withdrawn in retirement. Each offers different tax advantages. For more information, read the tax benefits fact sheet (PDF) .

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SMALL BUSINESS 401(k)

Q: What types of businesses can set up a Small Business 401(k)?

Corporations, partnerships and nonprofit organizations can establish Merrill Small Business 401(k) plans. If you're self employed or a sole proprietor, you may want to consider an Individual 401(k) .

Q: What are the potential tax benefits of a 401(k)?

Employer contributions are deductible by the business. Participant pre-tax contributions and earnings aren't taxed until they're withdrawn. For more information, read the guide to tax benefits (PDF) .

Q: How much can employers contribute annually?

Employers may match employee salary deferrals. Employers may make a profit sharing contribution for each eligible employee of up to the lesser of 25% of compensation or $61,000 for 2022. The maximum compensation on which contributions can be based is $305,000 for 2022.

Q: How much can employees contribute annually?

Employees may contribute up to $20,500 in 2022, or $27,000 for those 50 and older. The maximum combined employer and employee contribution is the lesser of 100% of compensation or $61,000 for 2022 (for those age 50 and older, $67,500) per participating employee.

Q: Does my business have to contribute to employee accounts?

It depends on the plan you select. Some plans don't require employer contributions. Others, such as safe harbor plans, do require a minimum contribution.

Q: What is a safe harbor plan?

Safe harbor plans automatically satisfy certain IRS nondiscrimination testing requirements. This plan type is designed to assure that your 401(k) plan is fair for all employees. With a safe harbor plan, employers are required to make contributions to employees' accounts, but there is some flexibility as to how they are made. For more information, read the guide to safe harbor plans (PDF) .

Q: How much does it cost to set up and administer a Small Business 401(k) for my company?

For your business, there is no setup fee. The monthly administration fee is $95. Each participant in your plan will pay a $5 monthly recordkeeping fee and an annual service fee of 0.70% of plan assets.

Q: When are contributions fully vested?

Employee contributions vest immediately. Employer contributions may vest over time according to the terms of the plan selected, but employer safe harbor contributions vest immediately.

Q: What investment choices are offered?

Merrill provides one type of investment menu containing specific and diversified asset classes including a qualified default investment alternative (QDIA) and cash alternative. For more information, please see the content located here (PDF) . Participants also have access to educational call center support from Ascensus and a suite of online investor-education resources.

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What's a Small Business 401(k)?

A Small Business 401(k) is a streamlined and affordable retirement plan designed with small business owners and their employees in mind.

Small business 401(k) features

Employees' primary financial goal is saving for retirement and 66% say their 401(k) will build enough savings for retirement.Footnote ⁵

Item 1 of 4 Enjoy contribution limits three times higher than that of a traditional IRAFootnote ¹

Item 2 of 4 Make contributions that are generally tax deductible by the businessFootnote ²

Item 3 of 4 Reduce your admin with a plan that's straight forward and easy to manageFootnotes ^3,4

Item 4 of 4 Get the benefits of a big company with small business convenience

Discover affordable straightforward pricing

Fee example: Sue has $10,000 in her account. This year, she will have approximately $70 withheld to cover the asset-based fee and $60($5 x 12 months) for recordkeeping fees.

Group 401(k)

Designed for a business owner and their employees

Your business pays:

Ascensus Recordkeeping Fees

No setup fee

Monthly administration

$95

Your employees pay:

Monthly recordkeeping

$5 per participant

Annual Asset-Based Fee

Participant servicing through the call center

0.20%

Merrill Fees

Annual Asset-Based Fees

Investment fiduciary services

0.08%

Trading, custodial & financial wellness

0.42%

View sample proposal (PDF)

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Key insights

The Merrill Small Business 401(k) can give you benefits of a big company 401(k) plan but is designed with small business owners in mind — it's streamlined, convenient and affordable. Benefits like the opportunity for tax deductions for your business, investment fiduciary support and call center educational support for your employees help make establishing a Merrill Small Business 401(k) a smart retirement solution.

Learn more about the Merrill Small Business 401(k)

Convenience

Receive help from a consultant while opening your account. Easy-to-understand pricing is generally lower than many comparable 401(k) plans. Our simple, secure platform lets you quickly check in.

Big plan features

Merrill offers one streamlined menu of investments designed exclusively for small businesses to help take the guesswork out of fund selection.Footnote ³

Tax benefits

Administrative costs, plan expenses, and company contributions, generally are tax deductible by the business. Your business may also be eligible for employee tax credits.Footnote ¹

Investment flexibility

Employer contributions can be structured as discretionary. This plan can be used in conjunction with another tax-qualified retirement plan while also being customizable.

What's a key difference between a Small Business 401(k) and a SIMPLE IRA?

Any type of employer regardless of their business size can open a Small Business 401(k) plan, while a SIMPLE IRA is designed for businesses with 100 or fewer employees. In addition, try our Retirement Account selector tool.

Learn more about small business retirement plans at Merrill

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Additional resources

Item 1 of 2:

Explore all plans available for small business

Get more details about small business retirement plans available at Merrill and find the one that works best for your needs.

SEP IRA plans at Merrill SIMPLE IRA plans at Merrill Individual 401(k) plans at Merrill

Learn more about retirement plans at Merrill

Frequently Asked Questions

Expand all

What types of businesses can set up a Small Business 401(k)?

What are the potential tax benefits of a 401(k)?

How much can employers contribute annually?

Depending on the plan's terms, employers may match employee salary deferrals and/or make profit sharing contributions for eligible employees. An employer's contribution cannot exceed 25% of the employee's compensation (if you are self-employed, 20% of your net earnings from self-employment). Also, the maximum combined employer and employee contribution is the lesser of 100% of compensation or $70,000 for 2025Footnote ⁹ (excluding catch-up contributions for those age 50 and older). The maximum compensation on which these contributions can be based is $350,000 for 2025.Footnote ²

How much can employees contribute annually?

Employees may contribute up to $23,500 in 2025, employees aged 50 and older can also contribute an additional $7,500 in catch-up contributions, totaling $31,000. A new, higher catch-up contribution limit of $11,250 is available for employees aged 60-63, allowing them to contribute a maximum of $34,750.

The maximum combined employer and employee contribution is the lesser of 100% of compensation or $70,000 for 2025 (for those age 50 and older, $77,500) per participating employee.Footnote ²

Does my business have to contribute to employee accounts?

What is a safe harbor plan?

Safe harbor plans automatically satisfy certain tax law nondiscrimination testing requirements. This plan type is designed to assure that your 401(k) plan is fair for all employees. With a safe harbor plan, employers are required to make contributions to employees' accounts, but there is some flexibility as to how they are made. For more information, read the guide to safe harbor plans (PDF).

How much does it cost to set up and administer a Small Business 401(k) for my company?

What is the difference between Roth and traditional 401(k) contributions?

The basic difference between Roth and traditional 401(k) contributions is when taxes are paid out. For Roth contributions, federal taxes are due in the same year you contribute. When you take a qualified withdrawal from your 401(k), earnings gained on top of the Roth contributions you made will be tax free. A qualified withdrawal for Roth contributions is one that is made at least five years after the year of your first designated Roth contribution (counting the first year as part of the five) and is made on or after attainment of age 59½, disability, or death. IRS Retirement topics, Designated Roth Account popup State income tax laws vary, and we recommend consulting with a tax professional to determine how your state treats Roth distributions from qualified plans (which include 401(k) plans).
Traditional 401(k) contributions do not require taxes to be paid at the same time you contribute. For traditional 401(k) contributions, taxes on contributions and earnings are due when withdrawn. Consult with a tax professional to determine further requirements, if any, on your 401(k) withdrawal for traditional 401(k) contributions.

When are contributions fully vested?

What investment choices are offered?

Can participants withdraw funds or take loans from their 401(k)s?

What is the plan establishment deadline?

The deadline to establish a new plan depends on the type of plan you want to adopt and the type of contributions you want to be available for the first plan year. If you want employees to be able to make contributions, you will generally want to allow enough time for them to do so before the plan year ends. However, if you want to adopt a safe harbor plan, your deadline to establish the plan is October 1 of the plan year assuming you establish a calendar year plan, but you will need to send a notice to participants at least 30 days before that.

To adopt a non-safe harbor 401(k) plan, the deadline is the tax filing deadline (including extensions) for your business. However, only a profit sharing contribution could be made retroactively for the first plan year if you wait until the next tax year to adopt the plan.

Is IRS reporting required?

When are the plan purchase deadlines?

Are there financial wellness resources available?

Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

Footnote ¹ Contribution limits apply for 2025, per tax law cost-of-living adjustment. Amounts for subsequent years may vary.

Footnote ² Contribution and compensation limits are subject to a cost-of-living adjustment annually pursuant to the Internal Revenue Code. Contribution and compensation limits for subsequent years may vary. For more information visit the IRS website popup. You should talk to your legal and/or tax advisors before making any financial decisions.

Footnote ³ Plan administrative and record-keeping services for Merrill Small Business 401(k) are provided by Ascensus. The Merrill Small Business 401(k) Advisory Service is an investment advisory program sponsored by Merrill Lynch, Pierce, Fenner & Smith Incorporated (also referred to as "MLPF&S" or "Merrill"). Merrill offers a broad range of brokerage, investment advisory and other services. There are important differences between brokerage and investment advisory services, including the type of advice and assistance provided, the fees charged, and the rights and obligations of the parties. It is important to understand the differences, particularly when determining which service or services to select. Please refer to the Merrill Small Business Advisory Service Brochure for information on the program including a description of the services and related fees. Educational call center support will be provided by Ascensus. Bank of America Corporation and Ascensus are not affiliated.

Footnote ⁴ Ascensus provides participant servicing through the Ascensus call center. Merrill provides the investment advisory services, ongoing product management, vendor oversight, trading and custody of plan assets, monthly transaction statements and financial wellness services.

Footnote ⁵ Fees will be deducted from the business account.

Footnote ⁶ Fees will be deducted from each participant's account.

Footnote ⁷ Please consider the advantages and disadvantages of taking a loan before initiating one.

Footnote ⁸ While you can contribute a profit sharing contribution up to 100% of an employee's eligible compensation, you can only deduct up to 25%.

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Investment products offered through Merrill Lynch, Pierce, Fenner & Smith Incorporated, and insurance and annuity products offered through Merrill Lynch Life Agency Inc.:

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Investing in securities involves risks, and there is always the potential of losing money when you invest in securities.

Asset allocation, diversification, and rebalancing do not ensure a profit or protect against loss in declining markets.

The performance data contained herein represents past performance which does not guarantee future results. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. For performance information current to the most recent month end, please contact us.

Net Asset Value (NAV) returns are based on the prior-day closing NAV value at 4 p.m. ET. NAV returns assume the reinvestment of all dividend and capital gain distributions at NAV when paid.

Market price returns are based on the prior-day closing market price, which is the average of the midpoint bid-ask prices at 4 p.m. ET. Market price returns do not represent the returns an investor would receive if shares were traded at other times.

Returns include fees and applicable loads. Since Inception returns are provided for funds with less than 10 years of history and are as of the fund's inception date. 10 year returns are provided for funds with greater than 10 years of history.

Before investing consider carefully the investment objectives, risks, and charges and expenses of the fund, including management fees, other expenses and special risks. This and other information may be found in each fund's prospectus or summary prospectus, if available. Always read the prospectus or summary prospectus carefully before you invest or send money. Prospectuses can be obtained by contacting us.

Mutual Funds and Exchange Traded Funds: Expense Ratio – Gross Expense Ratio is the total annual operating expense (before waivers or reimbursements) from the fund's most recent prospectus. You should also review the fund's detailed annual fund operating expenses which are provided in the fund's prospectus.

Closed End Funds: Expense Ratio – Gross Expense Ratio is the ratio of the fund's total annual operating expense (before waivers or reimbursements) to average net assets as of the date of the fund's most recent annual report. You should also review the fund's detailed annual operating expenses disclosed by the fund in its annual reports, semi-annual reports, and other public filings.

This material is not intended as a recommendation, offer or solicitation for the purchase or sale of any security or investment strategy. Merrill offers a broad range of brokerage, investment advisory and other services. Additional information is available in our Client Relationship Summary (Form CRS) (PDF).

Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

Merrill Lynch, Pierce, Fenner & Smith Incorporated (also referred to as "MLPF&S" or "Merrill") makes available certain investment products sponsored, managed, distributed or provided by companies that are affiliates of Bank of America Corporation ("BofA Corp."). MLPF&S is a registered broker-dealer, registered investment adviser, Member SIPC popup and a wholly owned subsidiary of Bank of America Corporation ("BofA Corp.").

Banking products are provided by Bank of America, N.A. and affiliated banks, Members FDIC and wholly owned subsidiaries of Bank of America Corporation ("BofA Corp.").

Merrill Lynch Life Agency Inc. ("MLLA") is a licensed insurance agency and wholly owned subsidiary of BofA Corp.

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SMALL BUSINESS 401(k)

Boost your business with competitive retirement benefits

What's a Small Business 401(k)?

Small business 401(k) features

Discover affordable straightforward pricing

Key insights

Convenience

Big plan features

Tax benefits

Investment flexibility

What's a key difference between a Small Business 401(k) and a SIMPLE IRA?

Additional resources

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Explore all plans available for small business

Frequently Asked Questions

Boost your business
with competitive
retirement benefits