Many financial experts agree that 401(k)s are the preferred way to build wealth for retirement. 401 (k) plans were created with unique financial advantages that can make a real difference in your savings.

Here is an example:

Self Employed? 401(k) also allows for a self-employed business, to contribute and or receive up to 25% of W-2 payroll up to the limit of $53,000 limit, or $59,000 if 50 years of age or older.

Why a 401K?

An opportunity to put more away for retirement

Experts estimate that you'll need between 60 and 80 percent of your pre-retirement income to live comfortably after you leave the work world behind. Sure, you could open an IRA. But you'll be able to contribute far more – over three times as much – to your nest egg with a 401(k).

Currently, federal laws limit your IRA contributions to just $5,500 per year. With a 401(k), you could be contributing as much as $18,000 per year. If you're 50 or older, you're allowed to make an annual "catch-up" contribution of $5,500. That's as much as $24,000 per year you could put towards retirement.

Are you self-employed? Even better. Self-employed owners can contribute a whopping $53,000 annually to a 401(k)!

All that money in your 401(k) can grow on a tax-deferred basis (or tax-free in the case of a Roth 401(k)). Don't forget that the earnings are compounding as well.

Example of 8% interest, over 30 years diagram

Ability to lower personal taxes

Not only does a 401(k) allow you and your employees to sock away more money for retirement, it also allows you to shelter those funds from taxes – with the government's blessing, of course. You have two options:

• With a traditional 401(k), any contributions you and your company make – plus any gains those funds earn – won't be taxed until you withdraw them in retirement. Saving on a tax-deferred basis minimizes the impact on your paycheck now.
• The Roth 401(k) works in reverse. You pay taxes on your contributions now, but those funds and any gains earned can be withdrawn tax free at retirement! With a Roth, your paycheck will take a bigger hit today, but you may stand to benefit later.

Either way you go, it's a win-win tax situation for you (and any employees).

Access to funds in an emergency

Here's another benefit you don't get with an IRA: immediate access to your money when you really need it, with no penalties.

Of course, you don't want to remove money from your retirement nest egg unless it's truly necessary. But with a 401(k), at least you have the option of doing so. You can loan yourself as much as $50,000 from your 401(k) savings, and as long as you pay it back as agreed, there are no tax penalties to contend with. Even the interest you pay on the loan goes back into your account.

Note that if you were to terminate your 401(k) without repaying the loan in full, there would be tax penalties – typically a 10% surcharge. Employees who choose this option should be careful: if their employment with the company were to end, any outstanding balances on their 401(k) loan would become due soon thereafter.

Matching and profit-sharing options

Contrary to popular belief, it's not a requirement that your company offer employees a matching contribution program with your 401(k) — it's an option. But if you decide to do so, you can reap the benefits personally as well. It's the same story if you decide to offer your employees 401(k) profit-sharing: you get a cut of the profits too (and a corporate tax deduction).

Note that owners' and key employees' personal contributions may be limited in the absence of a match or Safe Harbor plan. A "Safe Harbor" plan makes it easy for business owners to maximize contributions to their own accounts while reducing some of the limitations associated with adhering to IRS non-discrimination testing.

The Safe Harbor Plan allows you to:

• Contribute the maximum annual deferral amount ($18,000) to your own 401(k) plan
• Receive additional savings from your company's matching contributions (you're an "employee" too!)
• Avoid the hassles of IRS non-discrimination testing

Tax Breaks for your Business

Any company costs associated with operating a 401(k) plan can be deducted at tax time – including any contributions your company makes to the plan.

Plus, if you have at least one employee, and this is your company's first 401(k) plan, your business is eligible for an annual federal tax credit of $500 for each of the first three years. That's a $1,500 extra tax break!

A tool for attracting employees

There's been a revolutionary shift in the mindset of employees over the last few years. Workers today care just as much about their work environment and the employee benefits available to them as they do about the size of their paycheck. In fact, research shows that 40% of employees would leave their current employer for a similar job if it offered 401(k) benefits.

Whether you're recruiting or seeking to keep your current employees, a 401(k) is a terrific incentive. According to industry surveys, most employees work harder and stay on the job longer once a 401(k) is introduced.

In the past, only large corporations could expect to realize this benefit from their retirement programs. But with the introduction of plans like the ShareBuilder 401k, small companies are now equipped to compete on a level field for the employees they need.

Plenty of flexibility

An on-demand 401(k) is the most flexible type of retirement plan there is. As the plan trustee, you can determine who's eligible to participate, whether your company will match contributions, how long before employees become vested, and more. You can even tie company goals to 401(k) incentives.

401(k)s are portable, too – which means you can roll it over if you decide to start another company, or give it all up and work for someone else.

Other Things to Consider

Replacing an employee: it's 2-4 times more costly than you think

Survey results have shown that most small business owners estimate it costs about $6,000 to replace one employee.2 Most agree that getting a new employee 'up to speed' is the biggest cost.

401(k) plans are much more than a retirement vehicle for employees; they help you save on taxes and can even drastically lower your costs of acquiring and keeping your best talent. The actual numbers look like this:

• It costs 29% to 46% of an employee's annual salary to replace them
• So, replacing a $50,000 employee costs your company $14,500 to $23,000

Those figures include things like interviewing time by management, productivity lost due to the vacant position, training the new employee, and any advertising or other associated expenses. But it doesn't include variable costs, such as customers who might leave, or the knowledge lost with a resignation.

How savvy entrepreneurs use 401(k) plans to get an edge and cut overhead

Nearly 40% of small business employees without 401(k) benefits say they'd leave their job for a similar job that offers a 401(k) plan.2 But if by offering a 401(k) you can keep just one $50,000 employee, you'll save enough to cover a ShareBuilder 401k Simplified 401k plan for ten employees for 12 to 20 years.

Top that off with IRS tax credits and deductions your plan may qualify for, and you can lower your 401(k) cost even more. Providing a low-cost 401(k) plan can pay off in spades for your business, and help you stay ahead of the competition. Keeping your best people and lowering turnover costs can be a real advantage!

Strengthen loyalty with profit-sharing and vesting

Profit-sharing and/or matching into your 401(k) plan can be a great way to improve loyalty and reward employees for a job well done. Some companies give matching contributions that vest over a one- to four-year period as an additional incentive to stay while boosting employee engagement in their jobs. That can mean more productivity for your business, too.