Before You Start

This guide assumes you have a Gusto Complete or Concierge subscription and have decided on your 401(k) plan specifics (eligibility, vesting, matching policy).

Overview

35 min
Setup Time
Intermediate
Difficulty
Quarterly
Maintenance

What You’ll Learn

  • How to choose the right 401(k) plan within Gusto
  • Setting up employee contributions and employer matching
  • Ensuring ongoing compliance with retirement regulations
  • Accounting for 401(k) contributions and employer match

1. Preparation Steps

Before configuring your plan, consider these accounting impacts:

Required Accounts in your Accounting Software

  • 401(k) Withholding Payable (Liability)
  • Employer 401(k) Contributions (Expense)
  • 401(k) Plan Administration Fees (Expense)

Key Decisions to Make

  • Employee eligibility rules (e.g., age, tenure)
  • Employer matching contribution formula
  • Vesting schedule for employer contributions

2. Choosing Your Plan Partner

You have two main paths, each with distinct benefits and challenges.

Option A: Gusto’s Integrated 401(k) (e.g., via Guideline)

This is Gusto’s preferred, seamless integration.

Pros:
  • Automated payroll deductions.
  • Simplified compliance and reporting.
  • Competitive fees, often lower.
Cons:
  • Limited customization options.
  • Tied to Gusto’s chosen provider.
  • May not suit complex plan designs.

Option B: Third-Party 401(k) Providers

These are external providers that require manual data handling with Gusto.

Expert Tip: For most small to medium businesses, we strongly recommend Gusto’s integrated 401(k) option. It significantly reduces administrative burden and ensures tight integration with your payroll, minimizing errors and saving countless hours on manual reconciliation.

3. Step-by-Step: Implementing with Gusto

Here is the high-level workflow for setting up your 401(k) plan.

This diagram illustrates the flow of setting up and managing your 401(k) plan in Gusto.

From plan selection to ongoing payroll deductions and compliance, Gusto streamlines the 401(k) process for small businesses.

Here is a sample code block to show how employee 401(k) data might be structured.

{
  "employee_id": "EMP-001",
  "first_name": "Jane",
  "last_name": "Doe",
  "401k_contribution_type": "percentage",
  "401k_employee_contribution": "5%",
  "401k_employer_match": "3%_of_gross_pay",
  "effective_date": "2025-11-01"
}

4. Setting Up Your 401(k) in Gusto

  1. 1

    Choose Your Plan & Provider

    Navigate to the “Benefits” section in Gusto, then “Retirement,” and select your preferred 401(k) partner (usually Guideline for integrated plans).

  2. 2

    Define Eligibility & Vesting

    Configure your plan’s eligibility requirements (e.g., minimum age, hours worked, employment duration) and set up the vesting schedule for employer contributions.

  3. 3

    Set Up Contribution Rules

    Specify employee contribution limits and percentages, and define your employer matching formula (e.g., 100% match up to 3% of salary).

  4. 4

    Integrate with Payroll

    Gusto will automatically link the 401(k) deductions and employer contributions to your payroll runs, ensuring accurate and timely processing.

Common Error: Overlooking Eligibility Requirements

Ensure your plan’s eligibility rules (age, hours worked, tenure) are correctly configured in Gusto and align with your plan document to avoid compliance issues and potential penalties.

5. Testing Your Setup

Verification Checklist

  • Review a sample payroll with 401(k) deductions
  • Verify employer matching calculations are correct
  • Confirm Gusto’s dashboard reflects correct YTD contributions
  • Check employee access to their 401(k) portal is functional

Need Help?

Get Support

Having trouble setting up or managing your 401(k) plan in Gusto? Our team can help ensure a compliant and efficient setup.

Contact Us