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

Is Your 401(k) Being Mismanaged?

Estimated reading time: 3 minutes

Maximizing the money you invest in your 401(k) is important to your future. The choices that are made concerning your 401(k) have a drastic impact on your retirement. It’s important that you take the time to understand your own plan so you can assess whether or not your employer’s 401(k) plan manager is doing a good job preparing your future. 

Who Manages Your 401(k) Plan? 

If you work at a medium or small-sized business, it’s likely that the business owner or senior manager takes care of the 401(k) administrating. These individuals don’t typically have any financial background experience in investing. Most of these businesses want to offer the benefits of 401(k) plans to their employees, but they lack the funding of hiring an experienced financial advisor.

While setting up a 401(k) plan is fairly simple for any amateur to do, running the plan is another story. Many of the persons in charge of running these small business 401(k) plans don’t understand how to compare vendors, pick the most suitable investment menu, and other essential tasks to maximizing the earnings for the plan owner. In addition, realize that since the business owners and senior managers have many other duties as part of their job, it’s safe to say that the company’s 401(k) plans can be neglected from time to time when more important matters come up. 

Negative Impacts On Your 401(k) Plan 

Having a person with financial experience managing your retirement account is a necessity. If your account is being managed by someone with a limited financial planning background, they may be making poor choices. This could lead to investing in bad options, being charged too much from a vendor, and others. It’s important to realize that even a one percent decrease in your funding performance could equate to a large decrease in your retirement funds. 

What Should You Do? 

The first thing you should do is to become more educated about 401(k) plans. You should read over the documents you were given by your employer about your retirement account. This will help you to become more familiar with your account options, investments, and fees. 

If you find that you’re not totally happy with the design of the 401(k) plan, you have a few options. You can talk to other colleagues to see if they would be interested in approaching the company in a group setting. You can always speak to your employer about potentially changing the design of the 401(k) plans that they offer. Lastly, you can always opt to roll your 401(k) with the employer over to your own IRA account. 

Your 401(k) is a vital aspect of your future after retirement. If your account is mismanaged during your working life, it can drastically impact your ability to retire when you come of legal age. You should try to learn as much as possible about your own 401(k) account and be an active participant in setting yourself up to maximize the growth potential of your account .