To 401k or not to 401k, is that a question? For some employers the answer is yes. Determining the best retirement planning programs to offer your workers can be a business quandary. Offering benefits to your employees can be costly, but can also reward your business with devoted long term employees so finding a balance can be lucrative.
There are a variety of options for employers and their employees, including the popular traditional 401k and Roth 401k retirement savings plans. While similar in many respects, the two options offer different incentives to contributors. As a New Haven employer considering establishing either type of 401k plan, here are some key components that you should understand.
- Both types of 401k plans offer the option for matching contributions availability up to a combined 100% of a worker’s adjusted gross income. Employees under 50 can contribute up to $17,500 per year, while those over 50 can contribute up to $23,000 a year, and their amount can be matches by your company up to a combined $51,000 a year. There is also no income cap or minimum so all your workers can choose to contribute. Employees can take out loans against their plans up to 50% of the balance or a maximum amount of $50,000, which could help them in unforeseen situations. Both can be rolled into IRA or Roth IRA accordingly, upon termination of employment, or transferred to another employer’s comparable plan. There are however a few fundamental differences.
- The traditional 401k contributions are pre-tax, meaning that the money will be taxed upon withdrawal and distribution as ordinary income, while the Roth 401k funds are post-tax where the taxes are paid as the funds are put into the account. All employer contributions would sit in a pre-taxed contributing to the employee’s taxed funds. Roth 401k also offers the benefit of being able to extract funds 5 years after the initial opening of the account, providing your workers with slightly more access than the standard 59.5 year age distribution. While the traditional 401k allows the funds to be used for home payments, hardship, education and medical expenses with a 10% penalty the Roth 401k would distribute prorated share earnings unless the account is over 5 years old.
At Sinclair Risk & Financial Management, our New Haven financial management team offers a number of retirement planning strategies both to individuals and companies alike. We can help you establish which 401k plan is right for your employees and help you set up a program that you can be proud to offer. We also offer wealth transfer services and personal retirement planning services for all your employee’s needs. Call us today at (877) 602-2305 to discuss your goals as an employer and help create a program that fits your company needs.