Starting a 401(k) In a Small Business 

Staten Island business bank sees overlooked opportunity for owners’ retirement funding


STATEN ISLAND, N.Y. -- Owners of small businesses may be overlooking one of the ways to fund their own retirement, Victory State Bank suggests.

Large firms have been offering 401(k) plans to their employees for years. But small shops with only a few employees also can have them.

In many places, having a 401 (k) plan has become a key aspect of recruiting and keeping valued employees. Moreover, a 401(k) plan has been trending of late as the primary means for an employee to build up retirement savings.

It so happens that such a plan can be an effective retirement-savings vehicle for small-business owners, as well. 

A 401(k) is an employer-sponsored retirement savings plan named for a section of the federal tax code. It lets workers, including owners, save and invest some of their pay before taxes are taken out. Taxes aren’t paid until the money is withdrawn from the account, presumably in retirement.

Generally after age 59 1/2 withdrawals are optional until age 70 1/2, when they become mandatory. Should retirement occur somewhere within this age span, the 401(k) can be rolled over to a traditional individual retirement account (IRA). Mandatory withdrawals, which then incur tax payments, also apply to an IRA.

The 401(k) plans are named for the section of the tax code that governs them. Until the 1980s, most employers offered pension funds. But the costs escalated and 401(k)s replaced them.

In a 401(k), an individual can control how the money is invested. Most plans offer a selection of mutual funds.

A person's annual contributions are capped at $5,500, or $6,500 if 50 or older.

Plans do have management fees as well as setup and administrative costs,  which vary by provider. One 15-year-old company has been administering plans for many small businesses, now numbering approximately 7,000, the New York Times recently reported.

Whether to match an employee's contributions is optional.

Moreover, a provision in the federal Employee Retirement Income Security Act (ERISA) sets limits on contributions by highest-paid employees into their own account.

The Times, however, described a so-called safe harbor scenario that appears to benefit both employer and employee while complying with ERISA's rules.

Safe harbor requires an employer's contribution while letting employees put in as much as they wish, up to the regular 401(k) limits.

Small businesses just starting a 401(k) plan can begin traditionally and switch later on to a safe-harbor arrangement as business revenue grows, the Times noted.



About Victory State Bank

VSB Bancorp, Inc. (OTCQB: VSBN) is the one-bank holding company for Victory State Bank. As Staten Island, N.Y.’s only community-based commercial bank, Victory State Bank operates five full-service locations on the Island: The main office in the community of Great Kills, and branches in the communities of West Brighton, St. George, Dongan Hills and Rosebank.  For additional information, Victory State Bank may be reached at 718-979-1100 or visited online

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