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Most large, established companies offer a 401(k) plan to help their employees save for retirement. In fact, this benefit is so common now that potential employees come to expect it. Read on to discover six 401(k) plan benefits and why you should consider adopting one for the wellbeing of your employees and the good of your company.
1. Attract the Most Talented Employees
In today’s performance-oriented marketplace, it pays to have the top talent working for you. And by including a 401(k) plan in your employee benefits, you can offer a comprehensive employee package that will attract the most skilled candidates available.
In addition to boosting your recruiting power, a retirement plan can also help to retain the top performers in your company. By taking advantage of certain provisions, you can reward the ongoing loyalty of staff and give them financial incentives to stay long-term.
2. Enjoy Additional Tax Credits
For a small company, every opportunity for a tax break can make a significant difference to your bottom line. In Texas, several tax credits are available to companies offering 401(k) plan benefits to their employees:
- For three years after adopting a 401(k) plan, small business owners are eligible to receive a tax credit of up to $500. If you have a small startup plan, this credit typically covers 25-50 percent of your 401(k) costs.
- All of your company’s plan-related expenses and contributions can be claimed as tax deductions. This incentive diverts potentially taxable profits into tax-advantaged savings for yourself and your employees.
- Compared to other forms of investment, a 401(k) plan offers long-term tax benefits. Any tax accumulated on your pretax contributions increases on a tax-deferred basis. Once you start to withdraw the funds in retirement, you will only pay income tax on your earnings instead of the more expensive capital gains tax. 401(k) plans also allow select post-tax Roth distributions, in which your accumulated earnings will be completely tax-free.
- As well as providing retirement savings for your valued employees, a 401(k) plan also builds toward your own long-term financial future. As an owner participant, a customized plan design can be created to maximize your deferral contributions or capture the lion’s share of the company’s profit-sharing contributions. If your income level is over the limit for an IRA, a 401(k) scheme might also be the only access you have to Roth after-tax investment savings.
3. Support the Wellbeing of Your Staff
A happy employee is a more productive employee, and what makes employees happier than knowing that their future is taken care of? Thinking about the implications, the benefits of a 401(k) plan can extend far beyond the obvious tax breaks and higher employee retention rates.
In an ideal workplace, employees enjoy a long and fruitful career, after which they retire to enjoy their golden years with the financial benefits of their 401(k) plan. If your aging employees are worrying about how they will provide for themselves once they retire, they might decide to continue to work past retirement age — spending their best years of life away from their loved ones and increasing the company’s personnel and health care costs. Rather than waiting to pay these costs down the road, it’s smart long-term thinking to put this money into prevention by helping your employees save for a financially healthy retirement.
4. Demonstrate Social Responsibility
It’s a well-known fact that America is facing a retirement crisis with the bulk of Baby Boomers leaving the workforce — many of whom were not financially prepared. However, this doesn’t have to be the case for the financially-smart, forward-thinking generations of today.
By incentivizing employers and employees to achieve retirement readiness through the benefits of a 401(k) plan and Modern Portfolio Theory, the government is not only investing in a healthy economy but also building a generation of professionals that will be able to enjoy their retirement and the fruits of their labor.
5. Take Advantage of Favorable Trends
If you had been unsure about the benefits of a 401(k) plan in the past, it could be encouraging to note that the trends are up. The risks for employer liability have drastically decreased — thanks to a change in the industry’s preferred plan type and skilled liability-mitigating fiduciary services. The overwhelming shift towards participant-directed defined contribution plans has also taken much of the risk away from the employer. As the plan sponsor, you can delegate liability for specific plan functions with the help of a fiduciary 3(16) Plan Administrator, 3(21) Investment Advisor, or 3(38) Investment Manager.
Also, thanks to technological advances, the fees and costs associated with sponsoring a 401(k) plan are decreasing in pace with faster processing times and a simpler pathway for setting up a new investment plan.
6. Assess the Benefits of 401(k) for Employers
Naturally, any business decision must be based on a cost/benefit analysis that favors your bottom line both now and into the future. The benefits of 401(k) for employers, its owners, and employees must clearly outweigh the expenses and requirements for employer contributions.
As you weigh the pros and cons of adopting a 401(k) for your business, keep in mind that you can often mitigate the expenses through tax deductions or taking the funds out of the plan assets themselves. A fiduciary plan designer can also customize your employer contribution component to maximize your personal objectives if that’s something that you’d like for the health of your own financial future.
ML&R Wealth Management Can Help
As a team of fiduciary wealth management advisors, ML&R Wealth Management is experienced and ready to assist with determining the benefits of 401(k) for employers. Since 1997, we have been helping businesses in Austin, Texas to maximize their short- and long-term wealth potential.
Discover more benefits of 401(k) for employers and set your company on a sound financial path by arranging a free consultation with our financial advisors in Austin today.