You've successfully subscribed to Guideline | On retirement
Great! Next, complete checkout for full access to Guideline | On retirement
Welcome back! You've successfully signed in.
Success! Your account is fully activated, you now have access to all content.
It’s not the wrong time to start a 401(k). It might be the best time.
401(k) Starting a 401(k) for your business

It’s not the wrong time to start a 401(k). It might be the best time.

Nicolle Willson, J.D., CFP®, C(k)P®

The global economy is having a big impact on small businesses across the country. To help small business owners and their employees stay informed during this challenging time, we’ve gathered information on 401(k) savings, investing, and more. For the latest news and insights, visit our resource hub.

If you’re confident about the long term success of your business, a market downturn could be one of the best times to start investing.

For starters, with the SECURE Act in effect, eligible small businesses starting a new 401(k) plan can get up to $5,000 per year for the first three years to help with administrative costs, depending on how many non-highly compensated employees are eligible for the plan.

If you’re thinking about opening a new 401(k) plan, here are some things to consider:

Don’t panic about the stock market

While the stock market has had some infamous falls, historically the stock market has rebounded over time. The chart below illustrates historical ups and downs from 1950 to 2019, and as you can see, periods of growth far exceed market downturns.

At Guideline, we’ve created a portfolio suitability tool to help investors select a portfolio that’s appropriate for their savings goals, factoring in risk tolerance as well as time horizon, the two key drivers of asset allocation. When you choose a target investment allocation that’s right for your situation, short-term market volatility shouldn’t have a dire effect on your nest egg.

401(k) plans are long term savings vehicles, and for long term investors, including those with more than 10 years until retirement, it’s better to start saving sooner rather than later.

Think of your investments’ long term potential

Short term volatility, like what we are experiencing now, doesn’t usually matter in the long run. Instead of selling, consider buying more during short-term panics. You will end up ahead by buying when prices are low.

Say you were considering purchasing shares that cost $75 a share before a
market downturn. If those same shares are now available for $55 a share, you can buy more shares with the same amount of money. When the market turns up again, you’ll reap more for your investment.

Assess your current expenses

Finally, it’s always wise to ensure that your company has enough funds to maintain its necessary expenses, as well as the 401(k), while your business may be down. Guideline 401(k) plans are affordable and predictable—and that’s before any tax credits.

Say you have a 10-employee company, including yourself as the sole owner. If all of your employees participate in the 401(k), your annual cost to Guideline would be $1,428¹. If it’s your company’s first retirement plan, you may qualify to claim a tax credit that covers up to 50% of your eligible plan costs². Plus, you may claim a $500 credit for having an auto-enrollment feature, which all Guideline plans include. Both credits are available for the first three years, so your annual plan administration costs would only be $214 a year during that time frame!

When you factor in investing at lower price points than even a few months ago, the best time to start your company 401(k) plan and saving for retirement might actually be during a market downturn.


¹ Based on our Startup Pricing tier. View our fee disclosure here.

² Read the full requirements to see if your business is eligible.

This content is provided for educational purposes only and should not be construed as personal tax or investment advice. All investments involve risk and your investments could lose value. You are advised to consult a qualified financial adviser or tax professional before relying on the information provided herein.