Most small business owners think of a 401(k) as something you offer employees because you’re
supposed to. But what if your company’s 401(k) plan could be a powerful tool to lower your taxes, accelerate your personal wealth, and keep top talent longer—while giving you more flexibility than you think?
Let’s explore why the Traditional 401(k) deserves a second look, and how to maximize its benefits as part of your overall tax and financial strategy.
Why Business Owners Should Pay More Attention to the Traditional 401(k)
1. You’re Likely Missing Out on the Best Tax-Deferred Savings Option Available
Many small business owners focus on immediate reinvestment back into the company, and underfund their own retirement plans as a result. But the Traditional 401(k) offers a pre-tax contribution limit of $23,500 (plus $7,500 catch-up if you’re 50+), and total annual contributions—including employer matches—can go as high as $70,000.
That’s $70,000 a year you could be moving off your tax return, growing tax-deferred.
2. Profit-Sharing Adds Flexibility—and Bigger Contributions
Here’s where things get interesting: Profit-sharing allows you, as the owner, to increase your contributions beyond the basic salary deferral and match structure. Many business owners don’t realize they can use profit-sharing to contribute up to 25% of compensation, potentially hitting that $70,000 cap.
This can give you a bigger tax deduction and reduce your taxable income dramatically in a high-revenue year—something SEP IRAs or SIMPLE IRAs often can’t match.
3. It’s an Effective Retention Tool in a Tight Talent Market
Most small business owners struggle to keep great people. Offering a Traditional 401(k) with a strong employer match (or profit-sharing component) makes you more competitive. Combine that with vesting schedules that reward longevity, and you’re adding a meaningful retention strategy that aligns with long-term growth.
Pro Tips to Maximize Your 401(k) as a Business Owner
1. Combine With a Cash Balance Plan
If you’re already maxing out your 401(k), consider pairing it with a Cash Balance Plan, which can add another six-figure layer to your tax-deferred retirement savings.
2. Use Safe Harbor Provisions to Simplify Compliance
A Safe Harbor 401(k) helps avoid complex nondiscrimination testing, ensuring you can max out your contributions without worrying about whether your employees are participating at high enough rates.
3. Treat It as Part of Your Tax Strategy, Not Just a Benefit
Look at your 401(k) contributions as part of a larger strategy to lower taxable income, smooth out cash flow, and create long-term wealth. Timing contributions (or profit-sharing) strategically in high-income years can significantly impact your tax liabilities.
If you’re a small business owner and you’ve been thinking of a Traditional 401(k) as just a basic employee benefit, it’s time to take another look. When structured the right way, a 401(k) is a flexible, powerful tool that helps you reduce taxes, retain top talent, and build personal wealth faster.
Ready to Maximize the Strategic Power of Your 401(k)?
At Nth Degree CPAs, we help business owners design 401(k) strategies that go beyond retirement planning—they reduce taxes and create wealth. Schedule a consultation with us today and find out how to make your 401(k) work harder for you.
If you’re ready to learn more about setting up a Traditional 401(k),
schedule an introductory call with us today.
