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Attract and retain talented employees by offering an affordable, easy-to-manage 401(k) — designed for the needs of small businesses. Below, you'll find answers to frequently asked questions about Small Business 401(k) plans, rules, contribution limits and more.

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).

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 Participant pre-tax contributions and earnings aren't taxed until they're withdrawn.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).

How much can employers contribute annually?Footnote 2

  • 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 $57,000 for 2020 ($56,000 for 2019)
  • The maximum compensation on which contributions can be based is $285,000 for 2020 ($280,000 for 2019)

How much can employees contribute annually?Footnote 2

  • Employees may contribute up to $19,500 in 2020, or $26,000 for those 50 and older (limits for 2019 are $19,000 and $25,000)
  • The maximum combined employer and employee contribution is the lesser of 100% of compensation or $57,000 for 2020 and $56,000 for 2019 (for those age 50 and older, $63,500 for 2020 and $62,000 for 2019) per participating employee

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.

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).

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

There is a one-time setup fee of $390 for new plans and $390 for converting an existing 401(k) plan to Merrill. Once the plan is set up, the monthly administration fee is $90.

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 tax-deferred until withdrawn in retirement.
Each offers different tax advantages. For more information, read the tax benefits fact sheet (PDF).

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.

What investment choices are offered?

You can choose from funds and/or model portfolios selected by Morningstar Investment Management LLC. Participants also have access to educational call center support from Plan Administrators, Inc. (PAi) and a suite of online investor-education resources.Footnote 1

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

Yes. Loans and withdrawals are available if you choose these features in your plan, though the participant may incur tax penalties and/or fees. For more information, read "Know the facts about loans and withdrawals" (PDF).3

What is the plan establishment deadline?

Most plans may be set up any time before the end of the tax year, but be sure to allow enough time to make employee contributions before the year ends.
Safe harbor plans have an employee-notification deadline, and plans must be established before that date. For new plans in the current year, the date is October 1. For existing plans converting to a safe harbor plan for the following plan year, the date is December 1.

Is IRS reporting required?

Sometimes. Employers with eligible W-2 employees are generally required to file an IRS Form 5500 annually. If required, a signature-ready Form 5500 will be prepared, at no extra cost, for employer review.

Compare small business retirement plans

Need help or have questions?

Call 866.890.4177866.890.4177
Mon-Fri 8 a.m. - 5 p.m. CT to speak with a PAiFootnote 1 401(k) Consultant

Important disclosures

Footnote 1 Plan- and participant-level administrative and recordkeeping services for Merrill Small Business 401(k) plans are provided by Plan Administrators, Inc. (PAi). Investment advisory and fiduciary services are provided by Morningstar Investment Management LLC, a registered investment advisor and wholly owned subsidiary of Morningstar, Inc. Morningstar Investment Management LLC is a provider of investment management solutions, including investment advisory and retirement plan services. Educational call center support will be provided by PAi. Bank of America Corporation, PAi and Morningstar Investment Management LLC are not affiliated.
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.
Footnote 3 Please consider the advantages and disadvantages of taking a loan before initiating one.
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