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Get Started401(k) plans allow employees to save for their retirement by contributing a portion of their wages to an individual account. Employers can also contribute to 401(k) plans in the fo… more »
One of the most powerful perks you can offer your employees is a pension plan, and one of the most popular types is the 401(k). Named after an IRS code section, the 401(k) allows your employees to fund their own retirement through pre-tax contributions. If you can afford it, you can provide matching contributions. Both you and your employees get a tax break for contributing. A good 401(k) plan can:
The cheapest is a plan in which you don't match your employees' contributions. If you choose to contribute, you need to decide how much and in what fashion. You can contribute a set percentage along with your employees. You can make your contribution a bonus paid annually. You can use the contribution as part of a profit-sharing program. Whatever method you choose, participation by your employees needs to be voluntary.
It's important to gain an understanding of the 401(k) industry. Because 401(k) plans are complex, most companies hire a plan administrator to run their programs. Banks, brokerage houses and other financial services companies offer 401(k) plan services. But even the biggest banks typically use another outside vendor. You can buy directly from some of the same vendors. In addition, some offer more hands-on 401(k) software, usually at reduced costs.
When shopping for a plan, compare both prices and services. If you have only a few employees, you probably don't need an expensive plan with lots of options. You want to make sure the plan is both affordable and adequate for your needs. If you decide to use a self-run software plan, you should take it for a test drive to be sure you're comfortable running it.
There's lots of fine print in even the most basic 401(k) plan. Make sure you understand what you're getting and how much it will cost before you buy. Starting over can be a real headache.
401(k) plans are one of the most common ways that business help their workers to save for retirement. Although the Internal Revenue Service, or IRS, does put a limit on the amount that a person can deposit into their plan and the amount may change year to year, it can be one of the easiest ways for a person to save money. As a bonus 401(k) contributions are also often matched by an employer, however this is not a requirement, so you would have to do your research to find out which companies do this and which ones do not.
Both new and established businesses can consider getting a 401(k) plan for each of their employees, however it's important to keep some things in mind when you plan on making this big decision. Make sure that you know the laws and any structuring requirements about the plans, educate your employees on the various options that are available to them and about how 401(k) retirement plans work in general, and decide whether or not your business will manage the plans and how it will do so. If you decide you do want to go through with offering 401(k) retirement plans to your employees, you can either choose to have a finance or payroll employee manage the accounts or you can hire some source of outside management to do so. To find out more about 401(k) plans and how they may work for your company, use the numerous helpful links available on business.com.
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