Alex Lopez
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Alex Lopez on March 27, 2014

401K Benefits – What You Need to Know

What is a 401k Plan?

A 401K is defined by the Internal Revenue Service as “a contribution plan where an employee can make contributions from his or her paycheck either before or after-tax, depending on the options offered in the plan.” Saving for retirement and other expenses later in life doesn’t get easier than with a 401K. a popular way for employees to invest their earnings so that they can ensure a stable financial future for themselves. It can also be used as a tool for employers to recruit talented individuals and increase their employee retention rate. Here are some specific details that you should know about a 401K.


Why 401K?

The fact that employees can choose how much they want to contribute is big reason why this plan is popular. When compared to a pension with a pre-determined amount of money, there is plenty of flexibility with a 401K. Employees can manage their money and the decision making is left in their hands. With today’s online tools, this is easier than ever to do. They can also select how much they want to withdraw, which can be better than a pension where only a certain amount can be withdrawn each month.

Being an employer, you can implement this type of retirement plan into your company as a way to bring movers and shakers on board. Often when a talented person has offers from two different companies with basically the same credentials, they will choose the one with a 401K because it improves the outlook of their financial future. It can also serve as an incentive for employees to work hard and do their best, which often translates into more productivity.


What You Need to Know as an Employer

Depending on the plan, you may be expected to match the contributions of your employees. Typically, this will be 50 cents on the dollar for up to six percent of an individual’s salary. In terms of contributions, CNN Money states that the 401K contribution limits in 2013 were $17,500 for employees under 50 and $23,000 for employees 50 or older. One great thing about your contributions is that they are tax deductible, which can really ease your tax burden.

When setting up a plan, there will be some administrative fees along with additional costs that can vary depending upon the provider. However, most of these fees should also be tax deductible. Doing your research and making a thorough comparison between potential providers should ensure that you find the right fit without spending beyond your means.

Some primary factors to consider include the features, restrictions and whether or not there are fee variations. It’s also nice for a provider to offer some type of free educational assistance and/or customer service because you’re almost guaranteed to have questions at some point.

Although setting up a 401K for your business requires some time and money, it can really be a big asset. It can improve your legitimacy and create a loyal workforce of employees that are in it for the long haul. With many cost-effective options, this type of plan can be more affordable than you might think.

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