A Startup Benefits Guide: When to Offer a 401(k) Plan

In the early days of building a company, there’s a lot competing for your attention—from designing the product or service, to raising capital, hiring talent, and scaling operations. For many startups, employee benefits come later, including a 401(k) plan.

That approach may have worked a decade ago, but workforce expectations are quickly changing—today, 85% of employees expect their employer to offer retirement benefits. Retirement plans are no longer reserved for large enterprises; but instead have become a core part of a modern startup benefits package.

So, when should a startup offer a 401(k)? The answer is earlier than most founders think.

In this guide, we’ll explore the benefits of offering a 401(k) for startups, how you can determine the right time to implement a plan, and tips for getting started.

When Should a Startup Offer a 401(k)? The Answer: As Early as Possible

You’re not too small for a 401(k). A common misconception is that retirement benefits should wait until a company reaches a certain size or maturity. In reality, implementing a 401(k) for startups early can deliver the greatest long-term value. Here’s what early adoption can unlock for high-growth companies:

1. Recruit and Retain Top Talent

For startups, success often depends on a small, high-impact team. With lean teams and limited bandwidth for hiring and training, attracting and retaining exceptional talent can directly determine a company’s trajectory. Startup benefits play a major role in that equation.

TIP: Many startups offer startup employee equity to help teams build ownership in the company’s future. While equity provides long-term upside tied to company growth, retirement benefits provide financial security regardless of market outcomes. Together, they create a balanced wealth strategy that appeals to high-performing candidates.

2. Take Advantage of 401(k) Tax Credits

Under SECURE 2.0, eligible businesses may qualify for significant 401(k) tax credits when starting a plan. Companies can receive up to $16,500 or more over the first three years, along with additional contribution-based credits. Available credits include:

• The Startup Credit – Up to $5,000 per year for the first three years, designed to help businesses offset the costs of starting a retirement plan
• The Auto-Enrollment Credit — $500 per year for up to three years when adding automatic enrollment to a retirement plan
• The Employer Contribution Credit — Up to $1,000 per eligible employee annually for employer contributions for five years

These incentives reduce implementation costs and create a strong financial case for launching a retirement plan sooner rather than later. See how much your startup could save with Vestwell’s 401(k) tax credit calculator.

3. Stay Ahead of State Retirement Mandates

Dozens of U.S. states have launched retirement savings programs, including in New York, California, Illinois, Oregon, Colorado, and more. Designed to help more workers financially prepare for their future, these programs legally require certain employers to either offer their own retirement savings plan, such as a 401(k), or facilitate the state’s program.

By offering a private 401(k) for startups early on, companies can stay aligned with evolving compliance requirements while maintaining greater control over plan design and employee experience.

4. Design a Plan That Works for Your Business

401(k) plans offer flexibility that allow startups to design benefits around their growth stage, budget, and workforce needs. Employers can customize almost every aspect of their plan, such as employer matches, vesting periods, eligibility, and contribution types, so they can design benefits that fit both business goals and employee needs.

TIP: For many startups, a Safe Harbor 401(k) is an especially attractive option. Safe Harbor plans simplify administration and allows business owners to maximize their own retirement savings by helping employers avoid annual nondiscrimination testing. For founders, this means greater control, fewer compliance concerns, and a more streamlined benefits experience.

5. Improve Employee Retirement Readiness

Providing access to retirement savings supports both employee well-being and business performance.

With 76% of employees reporting financial stress, offering a 401(k) for startups can help:

• Reduce stress – Retirement savings help employees feel more secure about their financial future.
• Improve employee engagement – Financially confident employees are often more focused and motivated.
• Strengthen productivity – Less stress and financial distractions can equate to more productive teams.
• Build a more resilient workforce – Have a hand in helping your employees become prepared for long-term financial needs.

For startups just beginning to shape their workplace culture, retirement benefits help foster an environment where employees feel supported and valued both personally and professionally.

6. Build a Connected Benefits Infrastructure, Early

Establishing a retirement plan early allows companies to build financial infrastructure alongside payroll systems, startup employee equity programs, and other core operations, rather than retrofitting benefits later under pressure.

Checklist: Is Your Startup Ready for a 401(k)?

Use this checklist to determine whether now is the right time for your company to implement a 401(k) plan:

• You’re competing for top talent in a competitive hiring market
• You want to retain and reward key employees
• Your state has a retirement program mandate
• You want to maximize tax advantages for your business
• You’re looking to optimize personal savings as a founder or owner
• Your company is growing quickly
• You want more control over your retirement benefit
• You want to build a strong benefits and financial wellness strategy
• You want to strengthen company culture and employee engagement
• Current or prospective employees have asked when you plan to offer a retirement plan

Even if only a few of these apply, now may be the perfect time to explore adding a retirement plan to your startup benefits.

Building a Modern Benefits Strategy: Pair Equity and Retirement Perks Together

Pairing startup employee equity with retirement savings creates a more complete workplace wealth strategy that scales with company growth.

Carta 401(k), powered by Vestwell and supported by Morgan Stanley’s investment oversight, brings company ownership and workplace retirement savings together in a single, streamlined experience.

With automated administration, institutional-grade investment management, and modern infrastructure designed for growing companies, startups can offer competitive benefits, support employee financial security, and build a stronger foundation for long-term growth.