As a small business owner you know that hiring and retaining talented employees is key to your company's success. One way to attract top people is by offering a small business 401(k) retirement plan. Not only does doing so make your company more attractive to prospective employees, it builds trust with your current workers by telling them that you are interested helping them secure their future.
Hiring a 401(k) company is a headache-free way of putting a small business 401(k) plan into place. It takes an expert to understand the ins and outs of any retirement plan, particularly as regulations and tax rules seem to change every year. Hiring a professional 401(k) company lets the experts run the plan while you concentrate on running your company.
If you are on the fence about starting a small business 401(k) plan or are not exactly sure how your employees will benefit from one, take a look at these facts:
Future Financial Security
Company pension plans are nearly a thing of the past, and in 2017 the average Social Security check was just $1,413.08 per month. How many people can live on that in their golden years? It is obvious that if your workers are going to have a comfortable retirement, then they need a company 401(k) retirement plan to help supplement their Social Security benefits.
We live in an instant-gratification society, and with fast credit, it is all too easy to spend money instead of putting it in the bank. As a result, most people have very little saved for the future. A 401(k) plan helps solve this problem by withdrawing money directly from your employees' paychecks. This automatic deduction builds workers' retirement plan account balances without their having to lift a finger.
Lower Employee Tax Bills
No one likes to pay taxes, and one way to pay less of them is through a 401(k) plan. Because contributions come out of employees' paychecks before taxes are deducted, their taxable income is less, lowering the amount of tax they owe.
Another tax benefit is employee contributions and the earnings gained are not taxed until they are distributed. Because this happens during retirement when income tax rates are usually lower thanks to lower income, the taxes on distributions are less than they would be during employees' working years.
Even employees who do not contribute large amounts to their 401(k) account can accumulate a sizeable nest egg by the time that they retire. This is thanks to compound interest and letting the money grow year after year.
One of the reasons that you want to start a small business retirement plan is to attract and retain talented employees. It is a fact of life, though, that employees leave and move on. When they do, they can carry their 401(k) assets with them to their new employer. Even if they are no longer your worker, you have helped them improve their financial footing.
Deterrent to Ensure the Money Stays Put
If an employee withdraws money from his 401(k) plan before age 59 1/2, then he may incur a 10% penalty, meaning that he may have to give up 10% of the amount he takes out. This deterrent is what keeps many people from raiding their plan early, ensuring that the money will be there when retirement time arrives. A regular savings plan has no such deterrent.
While the 10% penalty is in place to ensure that employees' money will be left alone to grow, some 401(k) allow loans in case of emergencies, such as medical expenses or other hardship. In some cases, it better to borrow from a retirement plan than risk financial ruin.
Your employees are your company's most important resource. You should do whatever you can to keep them and help them secure their financial future. Establishing a 401(k) plan and outsourcing it to a 401(k) company is one way to do this. Talk to a 401(k) plan provider firm today to learn what it can do for you.