How to Leverage a Traditional 401(k) Business Plan to Lower Taxes and Build Wealth | Nth Degree CPAs

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If you're a business owner juggling tax planning, employee retention, and retirement goals, the traditional 401(k) plan might be the overlooked solution that ties it all together. Unlike other retirement plans, a 401(k) offers flexibility, scalability, and significant tax advantages—for both you and your team. Let’s break down how it works and why it could be one of the smartest moves for your business’s long-term financial strategy.


What Is a Traditional 401(k) Business Plan—and How Does It Work?

A traditional 401(k) business plan allows both employers and employees to contribute pre-tax dollars into a retirement account, lowering taxable income in the current year while building long-term savings. Contributions grow tax-deferred until retirement withdrawals begin, usually after age 59½.


Here’s why it’s an appealing option for small business owners:

  • Tax-deferred growth: Your contributions lower taxable income now, and your investments grow without immediate tax.
  • Employee contributions: Team members can defer a portion of their salary, helping them build their own nest egg.
  • Optional employer match: You can match employee contributions, providing an incentive that supports retention and workplace satisfaction.

Why the Traditional 401(k) Business Plan Deserves a Closer Look

Most business owners think of the 401(k) as a corporate benefit. But it can also be one of the most effective tax and wealth strategies available to small enterprises.


Tax Efficiency for Business Owners

As the business owner, your contributions are deductible, reducing your company’s taxable income. You can also contribute as an employee and employer, potentially doubling your tax-saving opportunities. Contribution limits are higher than most retirement plans, with the ability to contribute over $70,000 annually when combining employee deferrals, employer match, and profit-sharing.

Attract and Retain Talent

Today’s workforce values retirement benefits—and so do potential hires. Offering a 401(k) plan helps you compete with larger firms and retain top performers, especially when paired with a generous employer match or a vesting schedule that rewards loyalty.


Scalability for Growing Businesses

A traditional 401(k) business plan grows with your business. As revenue increases, you can enhance benefits, add profit-sharing, or even pair it with a cash balance plan for higher contribution potential.


Smart Moves to Maximize Your 401(k) Strategy

Setting up a plan is just the start—here’s how to make it work harder for your business.


  • Use a Safe Harbor Provision: Avoid complicated IRS testing and ensure you can maximize contributions without running into nondiscrimination issues.
  • Pair with a Profit-Sharing Option: Contribute beyond the basic match when cash flow allows, giving yourself and key employees a meaningful boost.
  • Stay Compliant: Work with a CPA or retirement plan administrator to meet reporting, disclosure, and filing requirements.

Build a Smarter Financial Future with Strategic Retirement Planning

A traditional 401(k) business plan isn’t just about helping your employees save—it’s a foundational piece of your tax and wealth strategy. If you’re ready to turn this underused benefit into a high-leverage asset for your business and your retirement, we’re here to help.


Get your customized 401(k) strategy today.
Schedule a consultation with Nth Degree CPAs, and let’s build a plan that aligns with your goals.

January 6, 2025

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