This Is Why Your Employer Should Offer a 401(k)

Estimated reading time: 3 minutes

Offering a 401(k) has now become standard practice for many businesses, regardless of what size they are. As employees start to realize the many advantages that 401(k) plans have over other types of retirement savings accounts, they are factoring the availability of one through employer benefits when deciding on which job they would like to take. Business owners are realizing this shift in need from employees and have indulged in creating 401(k) plans as they provide many benefits for the business as well. Let’s see what some of these benefits are below. 

Business Tax Savings 

Businesses can experience tax savings from offering 401(k) plans in three different ways. These include the EGTRRA Tax Credit, contributions tax deduction, and reduction of payroll taxes due annually. Let’s take a look at how each one of these tax savings work.

First, we have the EGTRAA tax deduction, which stands for Economic Growth and Tax Relief and Reconciliation Act. This allows small businesses an annual total tax credit of up to $500 for the first three years of instituting a retirement savings plan. The tax credit is equal to 50 percent of the cost of creating and administering a 401(k) savings plan. Only small businesses with less than 100 employees qualify for this tax credit. 

When a business decides to contribute to their employees 401(k) plans, they immediately qualify for a tax deduction. All the contributions that are made throughout the year can be deducted up to applicable limits. Lastly, when employees make contributions to their 401(k) plan, it’s from their before-tax income. This means the salary listed on the payroll sheet for the business will display the amount the employee made after their 401(k) contributions. This could potentially translate to a reduction in payroll taxes due annually.

Employee Recruitment And Retention 

In most situations, employees have many options when it comes to finding a job they want. This has led more employers to come up with great benefits to successfully recruit experienced staff. Having an established 401(k) retirement savings plan is a must for any business that wants to recruit and retain productive and knowledgeable employees. 

More Affordable Than Ever Before 

As employee pension plans are finally phasing out, the 401(k) is becoming the most popular form of retirement investing. This means that more affordable options are coming out to business owners who are looking to institute this type of employee benefit. No longer do business owners need to struggle with paying tons of money to financial advisors. Now, they can simply design and maintain 401(k) plans for their employees through simple web-based applications. 

As you can see, there are many reasons why business owners should seriously be thinking about offering their employees a 401(k) plan. These are not just great for the employees, but they are fantastic for the employers as well. We highly encourage any business owners out there who are not currently offering this type of retirement program to seriously look into doing so

How to Choose a 401K Plan: Three Factors to Consider

Estimated reading time: 3 minutes

If you’re lucky enough to work for an employer who offers a 401k plan, you’re already ahead of the retirement options curve than most people. A nice perk to most 401k plans is that your employer will typically match up to a certain percentage that you contribute. For instance, if your employer offers a 6% match option, any contribution you personally make up to 6% will essentially be doubled. If you contribute 4%, your employer will contribute 4% as well. If you contribute 8%, your employer will still only contribute that 6% maximum. It is usually recommended that you contribute at least what your company is willing to match because you will be doubling your investment every year at minimum. If you don’t, you’re effectively refusing free money. Having a 401k plan can be a great way to save for retirement. However, if your company offers more than one option, or twenty options, things can get confusing. A mistake people often fall into is just picking one randomly and hoping it works out. Explained below are a few factors to consider before you decide which investment option is best for you.

  1. Your age can determine a lot about how you should invest. Your portfolio should consist of at least a few different investments to increase your chances for growth and also to spread out your risk. Your age will determine the allocation of the funds to riskier investments versus safer investments. If you’re getting started early in life, time can be on your side with the riskier, but highly rewarded, options. If the market dips for a few months, you’ll have time to wait for an upswing and rebuild your wealth. The closer you get to retirement age, the fewer risks you’ll want to take with your soon-to-be needed funds. The portfolio balance should swing from mostly risky in your early life to mostly safe later in life. Your financial advisor can help you determine the balance that is right for you personally. The safer options won’t include as much reward, but you’ve hopefully built a strong account up to that point.

Your age may also determine how much you contribute to your account each year. The earlier you invest, the more time it has to grow. A person who consistently invests a little starting in their 20’s can still earn more by retirement than one who contributes a lot only at the end of their career. If you’ve put off saving for retirement, you may need to contribute more to catch up to your retirement goals.

  1. What you invest in could be restricted to only a few options by your company. Sometimes companies will choose plans that offer investments in their industry, while others prefer U.S. based companies regardless of niche. Plans also may necessitate a minimum initial investment. Some can be $1,000 while others will require $25,000 or more. If you’re just starting out, you may need to build up to the higher investment plans.
  2. Benefits and fees may also help you narrow down a plan. Some plans may offer in-person advice or personal control over the investment, but come with higher fees, while others have automatic or target-date options with fewer associated costs. You may also possess certain knowledge over specific niches that you’re more comfortable investing with, such as technology. In the end, it’s your money and you should feel at least somewhat comfortable with the investment options presented to you.