Several reasons exist with regards to why any business with employees should set up a 401(k) plan. It doesn’t only benefit staff members; it can also be beneficial to company owners in that it could help reduce payroll taxes and result in subsequent tax credits being provided. Along with this, setting up a subsidized 401(k) can also go a long way to help boost workplace morale – which will in turn enhance productivity and profits.
How does a 401(k) work?
Regardless whether you’re in a business partnership, are self-employed, part of a corporation or operating as a sole proprietor, it’s possible to set up a 401(k) plan. A 401(k) is a retirement plan that is federally insured and it enables employers and employees to contribute to it. If you’re an employer, you will be able to establish a unique investing schedule that will determine have much of an employees’ contribution you’ll be willing to match and up to an amount you choose.
How these Plans Benefit Employees
When providing one of these plans to employees, all contributions they make are withheld before tax is applied, meaning that they are fully invested in their own contributions. While penalties are imposed on anyone who withdraws funds from their 401(k) before reaching retirement or age 55, anyone who retires during the calendar year in which they reach age 55 (or older) won’t fall prey to them. In some cases, exceptions can be made for hardship withdrawals and loans based on an employee’s contributions.
Why it’s Essential to Contribute
Although you may not be mandated by law to contribute to a 401(k) if you’re an employer, you will benefit by doing so. Any employees who make contributions will also enjoy the benefit of having their taxable income reduced accordingly. This results in overall payroll taxes being reduced, which will in turn offset the contributions you make as an employer. For example, you might decide to match the first 4% of an employee’s contributions at 100%, and the next 1% to 4% by as much as 50%. In fact, this schedule can be set up in any way you choose.
How a 401(k) will Improve Morale
These days, many employees feel completely unappreciated in their workplaces. Even those with above average levels of education and who work harder than normal can struggle to survive because of personal circumstances.
Taking the time and making the effort to introduce a 401(k) fund to your employees will show them that you care about their long-term needs and you want to ensure that they succeed financially. To many employees, being introduced to a subsidized 401(k) plan will make them feel as though they’ve received some form of raise – despite the fact that these funds will only be accessed many years down the line.
Not only is a 401(k) plan a benefit that most employees want to be rewarded with; it is something that makes most of them feel more appreciated than usual. If you’re an employer who is keen to establish a 401(k) for your employees, chat with us today about getting one established.Continue reading