Why 401k/Retirement Plans?
401(k) plans can be a powerful tool in promoting financial security in retirement. They are a valuable option for businesses considering a retirement plan, providing benefits to employees and their employers. Employers start a 401(k) for a host of reasons.
- A well-designed 401(k) plan can help attract and keep talented employees.
- It allows participants to decide how much to contribute to their accounts on a before-tax basis.
- Employers are entitled to a tax deduction for their contributions to employees’ accounts.
- A 401(k) plan benefits a mix of rank-and-file employees and owner/managers.
- The money contributed may grow through investments in stocks, mutual funds, money market funds, savings accounts, and other investment vehicles.
- Contributions and earnings generally are not taxed by the Federal government or by most State governments until they are distributed.
- A 401(k) plan may allow participants to take their benefits with them when they leave the company, easing administrative burdens.
Since 2006, 401(k) plans may be established or amended to permit employees to designate some or all of their contributions (employee deferrals) as Roth contributions. These contributions are made on an after-tax basis, but distributions (including earnings) are tax-free (if certain conditions are met).
We have highlighted some of a 401(k) plan's advantages, some of your options and some of your responsibilities as an employer operating a 401(k), and the differences among the types of 401(k) plans.
Establishing A 401(k) Plan
When you establish a 401(k) plan you must take certain basic actions. For instance, one of your decisions will be whether to set up the plan yourself or consult a professional, such as The Tomei Insurance Agency.
Here are four basic actions necessary to have a tax-advantaged 401(k) plan:
Adopt a Written Plan
Arrange A Trust Fund For The Plan's Assets
Develop A Record Keeping System
Provide Plan Information To Participants