Company 401(k) Plans
If you own a small business, establishing a retirement plan for your employees is one of the most important things you can do to attract top talent, and provide a secure future for your employees.
A 401(k) plan is a simple and effective way for your company to help meet your employees’ retirement goals. 401(k) plans provide benefits to both employees and employers.
- A well designed 401(k) plan can help you attract and keep talented employees.
- It allows participants to decide how much to contribute on a pre-tax basis.
- Employers can claim a tax deduction for their contributions to employees’ accounts.
- 401(k) retirement plans can benefit all employees, including staff, line workers and management.
- Contributions and earnings are not taxed until they are distributed.
- Participants can roll over their plans and take their benefits with them if/when they leave the company.
- Some 401(k) plans may be established or amended to allow employees to designate some of all of their contributions as Roth contributions.
Types of 401(k) Plans
There are several different types of 401(k) plans and many decisions to be made about the type of plan you will offer, including the amount employees are allowed to contribute and how much of their contribution will be matched by you, the employer. These details should be spelled out in a written plan.
Traditional 401(k) Plan
A traditional 401(k) plan offers great flexibility. You are free to make contributions on behalf of participants and match employees’ deferrals, as well as specify that your contributions be subject to a vesting schedule (schedule that determines when you get full ownership of assets). A traditional 401(k) allows participants to make pre-tax contributions through payroll deductions.
SIMPLE 401(k) Plan
A SIMPLE 401(k) plan is for small business owners with less than 100 employees. Under a SIMPLE 401(k) plan, an employee can elect to defer compensation, but unlike a traditional 401(k) plan, the employer is mandated to make either a matching contribution of up to 3% of an employees pay, or a non-elective contribution of 2% of each eligible employee’s pay. This straightforward pay formula allows for easy administration and management on the employer’s end, however, SIMPLE 401(k) plans are not pairable with other retirement plans unlike a traditional 401(k).
SEP IRA Plans
While not a 401(k) plan, a Simplified Employee Pension (SEP) Plan allows employers to contribute to traditional IRAs constructed for employees. This vehicle is not limited to certain business sizes, and may provide a useful avenue for employers to further provide for their employees’ retirement.
Once you have decided on the type of plan for your company, you have a variety of options regarding your plan’s features. In addition, you assume certain responsibilities in operating the plan including: overseeing participation, contributions, vesting, non-discrimination, investing and fiduciary responsibilities, reporting to government agencies, disclosing plan information to participants, and distributing plan benefits. Money invested by and on behalf of your employees must be kept in a trust fund to safeguard these retirement assets, and they should be overseen by a responsible, knowledgeable trustee. Fortunately, Craig James Financial Services, LLC is able to provide reliable, accurate record-keeping to help you set up and manage a 401(k) plan that meets your company’s needs and the needs of your employees.
Call now at 631.393.2888 to further review our 401(k) services and to schedule a complimentary consultation.