How to set up a 401(k) for your startup: A step-by-step guide

Building a thriving startup isn’t just about great ideas and funding — it’s about people. And offering competitive benefits like a 401(k) plan can help you attract and retain top talent, enabling you to drive growth.

But for many startup founders, navigating the complexities of setting up a 401(k) plan is daunting.

In this guide, we’ll walk you through the steps required to set up a 401(k) plan, outline the different types of plans available, and highlight why offering retirement benefits is essential for your growth. So let’s jump straight in.

Why are 401(k)s essential for businesses?

Offering retirement benefits like a 401(k)s isn’t just a checkbox — it’s a game-changer in your ability to attract and retain top-tier talent. A robust retirement plan signals stability and long-term commitment to your employees' futures, and makes it more likely that they’ll stick around.

Both you and your employees can also enjoy tax benefits by contributing to a 401(k) plan, while you may even qualify for tax credits.

It’s also important to consider that, in some US states — such as California, Illinois, and Colorado — enrolling your people in a retirement plan is required by state law. A recognized 401(k) plan can fulfill this requirement, provided it meets the criteria laid out by the state.

To learn more about state employment requirements, check out our free US State Explorer tool:

Types of 401(k) plans for startups

Before you set up your 401(k), it’s important to know which types of plans are available. Here are some of the most common, as well as their defining features:

Traditional 401(k)

• Employees contribute pre-tax dollars, reducing their taxable income.

• Employers can choose to match contributions (optional but highly appealing).

• Withdrawals are taxed at the time of retirement.

Roth 401(k)

• Employees contribute after-tax income, but withdrawals during retirement are tax-free.

• Ideal for younger employees or those expecting higher taxes in the future.

Safe Harbor 401(k)

• Eliminates many administrative burdens by requiring mandatory employer contributions (e.g., matching or non-elective contributions).

• Helps startups avoid complex IRS nondiscrimination testing.

SIMPLE 401(k)

• Designed for small businesses with 100 or fewer employees.

• Offers fewer administrative requirements but caps on contributions are lower than other plans.

Benefits & Leave —

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SIMPLE IRA vs 401(k): Which retirement plan is right for your business?

Uncover the difference between SIMPLE IRAs and 401(k)s, and understand which plan is the most suitable one to offer for your business.

Choosing the right plan is critical, as it can impact your team’s satisfaction and your business’s budget. To help you opt for the right one, start by assessing your workforce's needs, with particular consideration of your employee demographics and likely contribution levels. For example, younger teams might prefer a Roth 401(k) for their tax-free retirement withdrawals, while a mix of income levels could make a Safe Harbor 401(k) appealing to simplify compliance testing.

Next, compare plan providers based on cost, administrative support, and flexibility. Look for a provider that offers startup-friendly features, such as low setup fees, automated compliance checks, and an easy-to-use platform for both you and your employees.

Consulting with a financial advisor or a benefits expert — like Remote — can help you navigate the complexities, and select a plan tailored to your team’s needs.

Setting up a 401(k): Step-by-step

Establishing a 401(k) plan for your startup might feel complex, but breaking it into steps makes the process manageable. Once you’ve identified and settled on the right type of plan, follow these steps:

1. Choose a plan provider

Providers vary by cost, ease of use, and level of administrative support, but it’s crucial to choose the right one. When assessing potential providers, look for:

• Cost-effectiveness: Compare setup fees, annual costs, and fund expense ratios.

• Technology: An intuitive online platform can simplify both setup and ongoing management.

• Support: Choose a provider that offers robust compliance monitoring and customer service.

Remember, too, that top providers often offer scalable solutions, allowing your plan to grow with your team.

2. Design the plan

This is where you work with the provider to decide the details of your 401(k). Consider:

• Eligibility. Will you offer it to all employees immediately, or set a waiting period (e.g., three months)?

• Employee contributions. How much will your people contribute (bearing in mind that there are contribution ceilings)?

• Employer contributions: Will you match your employees’ contributions and, if so, how? Options include:

  • Matching contributions: Matching a percentage of employees’ contributions (e.g., 50% of up to 6% of their salary).

  • Non-elective contributions: A set percentage for all eligible employees, regardless of their participation.

• The vesting schedule: You can implement a vesting schedule for employer contributions (e.g., your employees become fully vested after two years).

Draft these details in a written plan document, which is a required legal agreement outlining the operation of the plan.

3. Select investment options

Work with your provider to offer a diverse set of investment options. These typically include a mix of:

• Mutual funds

• Target-date funds

• Index funds

The goal here is to provide employees with enough choice to suit their risk tolerance and retirement timelines without overwhelming them.

4. Notify and educate your employees

Transparent communication is essential. Notify your employees about:

• The plan’s features, such as contribution limits and employer matching.

• How to enroll and manage their contributions.

• The investment options available.

Some providers offer onboarding sessions or digital tools to help employees understand and make informed decisions about their retirement savings.

5. Establish payroll integration

Coordinate with your payroll provider to enable seamless 401(k) contributions (see next section). Automated systems reduce the risk of errors, ensure compliance, and save you time.

How does Remote simplify all this?

Setting up and managing a 401(k) for your team members can feel like a full-time job in itself, especially if they are based in different states. But Remote can make the entire process quick and painless.

If you hire team members through our employer of record (EOR) service, we handle all benefits — including 401(k)s — for you. Based on your budget and your preferences, we’ll help you select the right plan, and ensure that it is set up and managed on your behalf. We’ll also ensure that the right contributions are made through payroll, and that you are fully compliant in all US states. How does an EOR work?

Setting up a 401(k) might seem like an intimidating process, but the benefits far outweigh the effort. Retirement plans are a tangible way to show your team you care about their futures — and they can make all the difference in building a loyal, engaged workforce.

To learn more about how Remote can help you provide a 401(k), speak to one of our friendly experts today.

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