A 401(k) is a retirement plan that many businesses choose to offer. This plan allows employees to deposit a percentage of their income into an account and some employers also contribute to the account. Although adding employment benefits have obvious benefits for employees such as improved morale and a culture of support, this retirement plan provides advantages for your business as well.
The Advantages of Offering a 401(k) at Your Company
Having a skilled and dedicated workforce is an integral part of operating a successful business. In order to acquire highly talented individuals, it's helpful to offer perks that your competitors do not. In a time when people are questioning the longevity of social security, a 401(k) plan can seem enticing to young professionals who seek financial stability for the future. This can often serve as the catalyst for finding elite talent in your industry and piquing their interest in your company.
Showing you value your employees with a retirement plan can also boost employee satisfaction. Keeping your workforce happy is an important part of maximizing output and overall productivity. When employees feel like they're working toward something and their company genuinely cares about them, they are likely to put forth more effort. This can also reduce your turnover rate and lay down the foundation for a loyal workforce.
Businesses can also take advantage of tax deductions when offering this plan. According to Sharebuilder 401k, companies can qualify for a $500 tax credit for the first three years as long as you have one employee. In some cases, this can offset most or all of the set-up fees you accrue with this credit. And, it doesn't include any contributions you make. Also, any incurred costs can be deducted at tax time. Matching your employees' contributions isn't mandatory, but it's usually a good idea if your business is relatively stable because company contributions are tax deductible, which means you can help your employees while getting considerable tax breaks yourself.
Although the specifics of a 401(k) can vary depending upon the needs of your business and the plan you choose, employees must be at least 21 years of age and employed by your company for at least one year. You are not allowed to discriminate against any employees, and a person cannot be denied this retirement plan simply because they are older. Also, you are not required to match the percentage that employees contribute but, as we mentioned, doing so can be beneficial.
There is typically an initial setup fee and maintenance fee, which can be paid monthly or annually. To avoid overspending, know what the common costs are. According to Sharebuilder 401k, the average cost for 2 to 10 employees per year is $1,000. For 11 to 25 employees, it's $1,500 per year and the cost rises as employees are added. Knowing these numbers should give you an idea of how a prospective plan matches up with others.
Unless you're highly knowledgeable of the setup process, it's smart to contact a financial institution for guidance. The United States Department of Labor website will give you the rundown on different plans, such as the Traditional and Safe Harbour Plans as well as explain company responsibilities and how contributions work.
Writing of a 401(k) plan document, arranging a trust fund to hold contributions, choosing a record-keeping system, and acquiring informational materials to distribute to qualified employees are important steps a business must take to implement their 401(k) program.
While some people think that 401(k) plans are strictly for large businesses, they can be used by smaller ones as well. Getting set up can take time and research, but it's worth the effort to build a solid foundation for your company. The advantages that this type of plan offers can help propel your business to the next level and keep you competitive within your industry.