As cannabis companies grow and develop their business successfully, they are met with regulations. Due to strict regulations, it may leave some wondering whether they can incorporate 401k for their employees.
Cannabis businesses can have a 401k for their business that isn’t directly put it under the 280e Tax code and COGS. However, the IRS may prohibit 401k if there is indirect labor and or wages of supervisors in the production line. Ideally, any cannabis company can, provided they follow their state’s regulations and work with a financial accountant to discuss their options.
Several companies enjoy the cannabis industry and having a 401k for their employees can allow them to fulfill their needs even further.
Whether you’re considering implementing a 401k for your employees or you want to know more about the rules surrounding it, you can continue to read on.
Are Cannabis Businesses Able To Have A 401k?
A cannabis business, especially a dispensary can have a 401k for their employees to receive retirement incentives earned.
The 280e tax code prohibits the trafficking of cannabis products and won’t allow companies to deduct any expenses surrounding it including packaging, inventory, cleaning, and trimming. Anything surrounding these activities prohibits cannabis companies from deducting these costs.
Salaries aren’t considered within the 280e tax code restrictions and allow companies to provide 401k solutions to employees.
There may be some circumstances where employees can’t receive a 401k due to regulatory restrictions. It’s best to speak with a cannabis accountant to explore your options and see what your company needs.
How To Offer A 401k To Your Employees?
There are many things you can do to get started on incorporating a 401k plan for your employees.
Here are the basic steps to get started:
1. Create a documented plan: You need to create a document to set up the type of 401k plan your business needs for employees. The document fundamental information about salary deductions and other details.
The types of plans you can pick are a traditional 401k plan, Safe Harbor 401k plan, and automatic enrollment 401k plan. When you’re done figuring out a plan, you can identify the employees you want in the 401k and how much they want to contribute. Certain laws will apply to the document and it’s best to follow the guidelines of the laws to include the right information in the written document plan.
2. Put a record-keeping system in place: You need to track and record the amount contributed to employees’ 401k plans, earnings, losses, investments, expenses, and others. These need to keep updated for you to submit to the Federal government. A financial accountant may help you through these activities for you to avoid any penalties.
3. Notify Employees of 401k: It’s best to let your employees know of the 401k plans they’re receiving and work with them to identify their contributions, benefits, and other features.
4. Submit Documents to the Government: It’s essential to gather all your records involving the 401k contributions for you to receive benefits and adhere to the legal regulations. Without submission, it can prove detrimental to your business and can accrue fees.
These are some of the steps to get started in ensuring your company follows the regulations and offers beneficial plans to employees.
If you’re unsure about how to get a 401k started then you can speak with a professional cannabis accountant to explore the area.
How Many Employees Does A Cannabis Business Need For A 401k?
You can have as many as 1 employee that’s eligible to receive a 401k within your cannabis business.
For companies with a larger staff, you can include any number of them to elevate the benefits of working in your company.
Many employees enjoy the beneficial asset of 401k plans since it provides future security for them and allows them to see your business as a quality company to work under long-term.
Employees interested in 401k plans are ones who want to stay in the company for a long time before they decide to move on if they do.
There are employees who don’t qualify for the 401k and it’s best to be aware of their qualifications.
Employees Not Qualified:
- Under 21 years of age
- Worked in the company for less than 1 year
- Covered by a collective bargaining agreement
- None-residential aliens
When you know the employees you’d like to place under a 401k plan, then start taking small steps to complete these actions.
These may vary due to the cannabis industry and there may be different regulations surrounding a 401k for cannabis companies. It’s necessary to identify the regulations and restrictions within your state surrounding retirement plans.
Why Does A Cannabis Business Need To Give 401k To Their Employees?
Cannabis businesses can receive substantial benefits by offering their employees a 401k plan since it allows employees to stay in the company longer, provides security, and allows a cannabis company to attract new workers.
Other benefits include:
- May offer tax advantages
- Allows employees to take their benefits if they decide to leave the company that lessens administrative duties
- Provides growth of money in investments
These are why cannabis companies should incorporate a 401k for their employees. It provides advantages to your cannabis business long-term that are great for the success of your business.
Final Thoughts
There’s alot to know about setting up a 401k plan in your business that involves attention to detail and time.
With several regulations surrounding taxes in the cannabis industry, setting up a 401k plan can prove daunting. When you conduct the right steps to developing a well-written plan and follow the legal rules, your business is in a better position to thrive.
Cannabis companies should offer 401k plans to elevate their company and attract employees who want to work long-term.
When opening a dispensary or a cultivation business, there are dozens of activities to conduct in a day.
An accounting specialist can provide simple solutions to simplifying the process of a 401k that can shave off hours of your time.
By speaking with a professional, you won’t worry about the little details and become guided on the simple details.
