Most people are familiar with the tax advantages to the participant of a 401(k) plan. There are also many benefits to an employer for implementing a 401(k) plan. Many of these are financial.
The first, and most obvious benefit to the employer, is the tax advantages which can offset some of the costs. Any Employer contributions, whether in the form of a match or a discretionary contribution, are tax deductible for the employer. In addition, if this is the first 401(k) plan for your company, you are eligible for up to $1,500 in tax credits. For the first three years of your new plan, you can take a tax credit of 50% of your startup and administrative costs, up to $500 per year.
Second, a good benefits package attracts quality employees, while encouraging longevity and loyalty. It is in every employer’s best interest to promote a positive company culture and to maintain superb employee morale. Some types of employer contributions follow a vesting schedule. This means the longer an employee stays with you, the more ownership they have in their balance. A 401(k) plan is an excellent start to an attractive benefits package.
Third, each 401(k) plan can be customized to fit the needs of the individual company. There are endless options available depending on the goals and desires of the owners. Some are looking to provide a competitive benefit package for their employees. Some are hoping to maximize savings and tax benefits for the owners while also offering a retirement package to their employees.
401(k) Plans also offer flexibility of investments and higher annual limits as opposed to saving for retirement through IRA’s.
Want more details specifically catered to your company? Contact Anne Christian, CPA at BWTP for a free analysis and proposal.