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Why should I start my 401(k) plan at the beginning of the year?
401(k)

Why should I start my 401(k) plan at the beginning of the year?

Nicolle Willson, J.D., CFP®, C(k)P®

Despite the holidays, the end of the year doesn’t leave everyone feeling warm and fuzzy. With open enrollment for benefits, it’s a big job getting employees set up with medical, dental, and vision plans. All that work can lead some small businesses to put off offering a 401(k) plan.

Here’s the thing: Not only is the end of the year actually a good time to evaluate retirement benefits, it might be the best. To boot, offering retirement benefits has never been more affordable — making it a whole lot easier to take the leap.

Let’s go through why timing your 401(k) rollout with open enrollment makes sense for you and your employees.

Retirement plans are an affordable part of any benefits plan

While there’s no getting around the high price of insurance, don’t let it dissuade you from also offering a 401(k) plan this open enrollment. The average cost of employer-sponsored health insurance for an individual or family is $7,188 and $20,576 and per year, respectively. In comparison, a Guideline retirement plan for an entire company with 20 employees costs as little as $199 per month, less than the cost of insuring one employee.

New tax incentives make rolling out a retirement plan even more affordable. Under the SECURE Act of 2019, most companies with under 100 employees (eligibility details can be found here) are eligible to receive tax credits totaling as much as $16,500 over three years.

Let’s contextualize how much those savings amount to. For companies with fewer than 10 employees, the tax credits could completely cover the cost of a 401(k) plan for three years. If you’re in the middle of budgeting for employee benefits costs, use our tax calculator to see how much you could save.

Rolling out a 401(k) at the end of the year is a better experience for employees

No matter your renewal schedule, open enrollment season is the ideal time to roll out a new retirement plan. Employees were already planning on evaluating their health, dental, and vision plans—why not catch their attention while benefits are top of mind?

Simplify retirement planning
Given that nearly two-thirds of US workers don’t understand their retirement benefits, open enrollment is an ideal time to walk through the ins and outs of your 401(k) plan. Since most companies organize benefits orientation meetings and office hours, it's a natural time to get ahead of employee questions or misconceptions. The more employees know, the better the odds they’ll participate.

If you’re worried about overwhelming employees, you can breathe a sigh of relief. While enrolling in health insurance takes a lot of effort and due diligence on employees’ part, setting up a 401(k) account is easy. Users can get set up in Guideline in as little as 10 minutes. After asking enrollees to take a short risk assessment, our software automatically recommends a managed plan that suits their needs. While we can’t make your 100-page health insurance packet any shorter, we can help your employee get on the path to retirement.

More time to maximize contributions
If your benefits take effect on January 1, there’s an additional perk to consider. The IRS limits how much employees can contribute to their 401(k) account per year. If you roll out your retirement plan at the start of the year, you’re giving employees twelve months to max out their contributions.

This isn’t as easy if your plan has a later start date. As of 2020, the annual 401(k) contribution limit is $19,500—not exactly pocket change for someone who wants to reach their maximum in just a few months.

A 401(k) is easier to manage for administrators when it starts at the beginning of the year

For the typical HR team, hearing the words “open enrollment” can incite cold sweats. Choosing your company’s benefits, building a communication strategy, and getting new plans to work with your existing HR and payroll technology is a lot to take on in just a few weeks.

Easy onboarding and administration
If you’re thinking about putting off the decision to offer a 401(k) plan for any of the above reasons, take a deep breath. After we’ve helped you design your plan, Guideline takes on all the heavy lifting. We’ll onboard your employees and give them time to set up their accounts. Once they’ve decided how much they’d like to contribute, getting that information in payroll is easy. Guideline’s software integrates with all the top payroll providers, like ADP, Zenefits, and Rippling. For a full list of integrations, click here.

Mitigate compliance risks
If your benefits take effect on January 1, starting a retirement plan at the same time could also lessen your compliance risk. Most 401(k) plans are subject to nondiscrimination testing to ensure high-earners don’t have an unfair advantage. If you start your plan too late in the year, those individuals might be inclined to contribute a lot of money at once. The discrepancy between their contributions and everyone else’s could raise red flags from regulators.

Still worried about passing nondiscrimination testing? Considering making your 401(k) plan a Safe Harbor plan—this requires employers to contribute more to employees’ accounts and exempts a plan from annual nondiscrimination testing.


Your small business already goes above and beyond by offering competitive medical, dental, and vision plans. This open enrollment season, add a 401(k) plan to the mix. In addition to being easier on your team (and employees), rolling out a retirement plan now sets your company apart as an employer. In times of anxiety and uncertainty, investing in your employees’ retirement security sends a powerful message.

Getting started with Guideline is easy. To learn more, schedule a call with one of our retirement experts.

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