401(k) for Small Business: What a Retirement Plan Really Costs

The real cost of a small business retirement plan, the tax credits that can pay for most of it, and how to pick the right plan for your team.

A 401(k) costs less than most small business owners think.

Many owners assume a 401(k) is only for big companies. In reality, setting up a small business retirement plan has never been more affordable, and federal tax credits can cover most of the cost for the first few years.

This article breaks down what a 401(k) for a small business really costs, from setup and administrative costs to investment fees and employer contributions, and shows how the SECURE 2.0 tax credits offset those costs. It also compares the retirement plan options for small businesses so you can choose the right plan for your business needs.

Why Offer a Retirement Plan

When candidates compare offers, a retirement benefit is one of the first things they look for. Yet according to the Bureau of Labor Statistics, only 59% of workers at businesses with fewer than 100 employees have access to a retirement plan, compared with 90% at companies with 500 or more. Closing that gap is one of the simplest ways to compete with larger employers for top talent.

See how we set up and manage 401(k) and retirement plans for small businesses.

It helps you, too

A 401(k) isn't just an employee benefit. As a business owner, you can participate in the plan and save far more than an IRA allows. For 2026, employees can contribute up to $24,500 of their own pay, plus an $8,000 catch-up at age 50 or older, and total contributions to one account can reach $72,000.

Tax benefits for the business

• Employer contributions are generally tax-deductible business expenses.
• Plan costs paid by the business are generally deductible, and new plans may qualify for tax credits.
• Employees save pre-tax or Roth dollars through payroll, so the plan works for every budget.

For the small business owner, the decision to offer a retirement plan is really a decision about what kind of company you want to be. Even a simple plan where employees can contribute their own pay, with no employer contribution at all, gives your team a retirement savings program they couldn't easily set up on their own.

Offering a retirement plan helps you attract and keep good people, and it's one of the most powerful ways for a business owner to save for retirement.

What a 401(k) Really Costs

Setting up and maintaining a retirement plan for your business involves four kinds of plan costs. Some are paid by the business, some by plan participants, and some can be paid either way, depending on plan design.

1. Setup costs

Setting up a plan includes drafting the plan document, onboarding with a plan provider and connecting payroll. Many providers charge a one-time setup fee; the startup tax credit can cover it.

2. Administrative costs

Ongoing recordkeeping, compliance testing, required notices and the annual Form 5500 are usually billed as a flat fee, a per-participant fee or both. These administrative costs are often the business's largest out-of-pocket expense.

3. Investment fees

Each fund charges an expense ratio, typically paid from plan assets by participants. Low-cost index funds and exchange-traded funds keep investment fees down. Industry data shows a wide range: a $1 million plan with 100 participants can pay anywhere from 0.87% to 3.56% a year in total costs.

4. Employer contributions

A match or profit-sharing contribution is optional in a traditional 401(k) but required in a safe harbor plan. It's usually the biggest line item, and it's also the one most directly tied to recruiting and retention.

Most qualified retirement plans allow employees to make plan contributions through payroll, so a flexible plan design can keep the employer's share predictable while still giving every employee a way to build personal retirement savings with low fees.

Know every fee, who pays it and what you get for it. Transparent pricing is the first sign of a good plan provider.

Tax Credits That Offset the Cost

For small businesses with 100 or fewer employees, three federal tax credits apply to new plans. A credit reduces your tax bill dollar for dollar, so it's worth more than a deduction.

Startup cost credit

Covers 100% of eligible setup and administrative costs for businesses with 50 or fewer employees (50% for 51 to 100), for up to three years. The annual cap is the greater of $500 or $250 per eligible non-highly compensated employee, up to $5,000.

Automatic enrollment credit

An extra $500 a year for three years when the plan automatically enrolls eligible employees.

Employer contribution credit

Up to $1,000 per eligible employee in years one and two, then 75%, 50% and 25% in years three through five. Employees earning more than $110,000 in FICA wages (2026) don't count, and the credit phases down for businesses with 51 to 100 employees.

These credits are only for new plans at businesses with 100 or fewer employees, which is why now is a good time for small businesses that don't yet have an available retirement plan to offer one.

With the startup, auto-enrollment and contribution credits, many small businesses can launch a 401(k) for a fraction of the sticker price.

Retirement Plans for Small Businesses: IRA Plan or 401(k)?

401(k) or SIMPLE IRA?

The savings incentive match plan for employees (SIMPLE IRA) is available to small businesses with 100 or fewer employees. A SIMPLE IRA is easy and inexpensive to run, but its lower limits and required employer contribution can limit owners. A 401(k) costs a little more to administer but offers higher limits, Roth options, profit sharing and more control over plan design.

Why many owners choose safe harbor

Traditional 401(k) plans must pass annual nondiscrimination tests that compare highly compensated employees with everyone else. If too few employees participate, owners may get refunds. A safe harbor plan avoids most testing in exchange for a required employer contribution, which is why the safe harbor plan type is popular with small business owners who want to max out their own retirement account.

Catch-up contributions: $8,000 at 50+ ($11,250 at ages 60–63) in 401(k) plans. Employees with prior-year FICA wages over $150,000 must make catch-ups as Roth.

The right plan depends on your team size, budget and how much the owners want to save. We'll model the options side by side.

Keeping Your Small Business Plan Costs Low

Under the Employee Retirement Income Security Act (ERISA), offering a 401(k) makes you a plan fiduciary. That means acting in plan participants' best interest, including making sure plan costs are reasonable. The good news: the steps that protect you also keep fees low.

Five habits of a low-cost plan

1. Benchmark fees every two to three years against similar plans.
2. Favor low-cost index funds and avoid revenue-sharing share classes.
3. Get flat, transparent pricing for recordkeeping and administration.
4. Share fiduciary duties: a 3(38) investment manager and a 3(16) administrator take on key responsibilities.
5. Review the plan annually as your business size and goals change.

Choose investment options carefully

Selecting the plan investments is a fiduciary decision. A focused menu of investment options, such as low-fee index mutual funds and target-date funds, is easier for plan participants to use and easier for you to monitor. Many business owners work with a financial adviser who acts as a fiduciary to select and review the funds.

Watch for hidden fees

Some bundled plans fold administrative costs into fund expense ratios, so employees pay more than they realize. Ask for the provider's fee disclosure and compare all-in costs, not just the setup fee.

A well-run plan isn't the cheapest plan. It's the one with fair, transparent costs and an advisor who reviews it with you every year.

401(k) Costs for Small Business: FAQ

Quick answers to the questions business owners ask us most.

How much does a 401(k) cost a small business?

It depends on plan design, provider and employer contributions. Administrative costs often run from a few hundred to a few thousand dollars a year, and for businesses with 50 or fewer employees, the startup credit can cover 100% of eligible costs, up to the cap, for three years.

Can a business owner get a 401(k)?

Yes. Owners can participate in the company plan, and owners with no employees can use a solo 401(k). Either way, the owner can save far more than an IRA allows.

Do I have to match employee contributions?

Not in a traditional 401(k). Safe harbor 401(k) and SIMPLE IRA plans require an employer contribution, but they're simpler to administer and let owners contribute the maximum.

What's the cheapest retirement plan for a small business?

A SEP-IRA or SIMPLE IRA usually has the lowest administrative costs. A 401(k) costs a bit more but offers higher limits, more investment options and more flexibility, and the tax credit for new plans often closes the gap.

How long does it take to set up a 401(k)?

Typically a few weeks: choose the plan type and provider, adopt the plan document, connect payroll and hold an enrollment meeting.

Do you work with businesses outside Texas?

Yes. Benefits On Us is based in Houston and helps employers across the U.S., with support in English and Spanish.