If you’re like most, the final days of December have us thinking of all things 2017 and how we can make personal improvements in the new year. In addition to goal setting around ever-popular wellness, financial health often tops many resolution lists. After spending more than we traditionally do on gifts, outings and events, January is the perfect ground to assess your bank account and set goals for yourself and your business. As an employer, one of the best programs that you can offer your employees is a 401(k) plan to help them save and demonstrate your investment in their future.
A 401(k) is a tax-advantaged retirement savings account that gives employees responsibility for their retirement income. This usually includes employees contributing part of their salary and, in many instances, directing their own investments.
A 401(k) can be an employee’s sole retirement account OR coupled with other investment accounts like IRAs, pensions etc.
401(k)s are typically broken into two categories:
To encourage enrollment, employers often match part of their employees’ retirement contributions.
For example, an employee named Susan sets aside 4% of her paycheck to her 401(k). Her employer can opt to match her contribution, adding an extra 4%. This ensures that Susan saves a total of 8% for retirement. The best part? She only has to pay for the 4%, as the extra 4% comes from her employer.
Attracting and Retaining talent
According to the NYTimes, 1 in 4 small businesses offer 401(k). Which means offering a 401(k) gives you an advantage over ¾ of small businesses when hiring; in addition, offering 401(k) signals sense of stability and that the company is employee-centric. Moreover, when an employer decides to match their employee’s contributions, it shows that the company wants to invest in and retain their employees.
How to set the terms:
Employers choose who and when employees receive 401(k) benefits. In addition, 401(k) accounts offer a wide range of investment funds to choose from (Index, mutual etc).
What are the tax benefits?
If the employer contributes a 401(k) match, employer has the opportunity to pay less in company taxes.
More Options, Higher Limits:
When you contribute beyond your 5,500k IRA limit ($18k total), you can take possible retirement savings to $23,500.
Many employees are attracted to the fact that payroll providers will deduct their 401(k) directly from their paycheck. This avoids the hassle of employees depositing their 401(k) contributions separately.
You get to choose when you’re taxed (now or later depending on your tax picture. Regardless of the timing, all savings grow tax free!
One of the most powerful incentives to enroll in a 401(k) plan early, is seeing the difference in retirement savings for those who start young and those who wait. Saving early allows your interest to compound, and the earlier you get your money to work for you, the larger amount of savings you’ll see in your future.
This is a one-time fee paid at the beginning of the process and usually hovers between $495 to a few thousand dollars.
Ongoing Service Fee
This is charged to the employer on a monthly basis and comes in four possible buckets:
Employee Fees: these usually occur on a quarterly basis and can be paid by employer OR employee.
NOTE: If your company matches employees’ 401(k) contributions, you will also want to consider this in your company’s cash flow.
As you mull these over and consider the financial implications of offering a 401(k) plan, it’s helpful to know where you can find a 401(k) provider, and the differences between them. Visit BrightScope’s website for a helpful comparison offered by different companies.
Providers can roughly be divided into three categories:
Traditional Investment Firms
Online, Low-Fee Providers
Bundle with Other Benefits
Meaning, you can use your current insurance or other benefits provider to set up your 401(k).
Want a more in depth explanation of all the above financial information? Tune in to hear the webinar recording from Zenefits & eShares to ensure your financial fluency in 2017 – watch it here:
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