Selecting the retirement options your company offers will have a long-term impact not only on your business, but on the ability of your employees to prepare for retirement. Rewarding the service of your employees by helping them prepare for retirement stress-free is a goal of most small and mid-size business owners. Since you’ll probably be utilizing the same retirement plan you offer your employees, your retirement plan selection will affect both you and your employees. Understanding the types of plans that you have to choose from is the first step in making the right retirement plan choice for you and your employees. Here are three of the most popular types of plans for your business.
The traditional 401k plan is the most popular employer-sponsored defined contribution plans available to many companies. Every contribution that the employee makes to their 401k plan entitles them to a tax deduction. 401k plans are a convenient and easy way for your employees to save for their retirement. Contributions to an employee’s plan are automatically deducted from their paycheck and deposited into their retirement account, making 401k plans a conducive component to the success of an employee’s retirement goals. Additionally, offering a 401k retirement plan gives your business an edge in employee recruitment and retention, offers significant tax advantages for both your company and your employees, and helps secure your and your employee’s retirement.
The ease and convenience of participating in a 401k is especially attractive for employees who want minimal hassle from their retirement plan. Features like automatic enrollment and automated payroll deductions allows your employees to save for their futures without much interruption.
A Roth IRA is an individual retirement account funded with taxed dollars. You enjoy the benefits of tax-free growth and tax-free withdrawals. Roth IRAs are often offered in conjunction with a traditional 401(k).
If you have a large number of younger employees, particularly millennials or younger, Roth IRAs may be a good option for your company to offer. For younger employees who are still decades from retirement, the ability to pay taxes today at a known rate and have their retirement savings grow tax-deferred and come out tax-free can be extremely lucrative.
Roth IRAs also offer employees the option to continue contributing after retirement. An added bonus, if employees need money before age 59 ½, there is no penalty for withdrawing contributions (though there is a 10% federal penalty for withdrawing earnings). Roth IRAs are subject to eligibility and contribution limits that depend on your modified adjusted gross income and tax filing status.
Traditional IRA contributions are tax deductible and enjoy tax-deferred growth. Subject to the same annual contribution limits as Roth IRAs, a traditional IRA does not have income restrictions so anyone can contribute to this plan type.
Traditional IRAs are a better option for employees who are closer to retirement, such as those with five to ten years left in the workforce. With upfront tax deductions and tax deferral, the benefits of a traditional IRA allow your older employees the opportunity to both save for retirement and save money now. Traditional IRAs are subject to required distributions at age 70 ½ and plan contributions must cease at this point. Retirees pay tax on contributions and earnings as they make withdrawals from their IRA.
Let the Sheakley team help
Offering retirement plan benefits to your employees doesn’t have to be a complicated or overly expensive venture for your business. Sheakley Retirement experts can help you select the right retirement plan for your employees and your business. Remember, by electing to provide retirement benefits, you are ensuring the comfortable future of both your employees and yourself.
Schedule your free consultation with Sheakley Retirement professionals today. Stay up-to-date on all things Sheakley by subscribing to our blog and following us on social media. Join in the discussion by commenting below.