Every small business should consider setting up a plan for retirement. Retirement planning can help a business owner save for the future, earn money on investments and help with taxes. Moreover, offering retirement benefits attracts good employment candidates. Once employed, the chances of employees remaining with the business increase when the business offers retirement plans as a benefit. Currently, many small businesses offer retirement plans known as the 401(k) Plan.
401(k) Plans are a form of retirement savings plan offered by employers that allows workers to save pretax earnings in a retirement account. 401(k) is named after the Internal Revenue Code section that governs these accounts. 401(k) Plans were offered as a supplemental retirement plan in the 1980s when employees realized that pension plans do not offer adequate income during retirement.
The money in the retirement account is invested in a selection of mutual funds. Employees can choose the type of fund they want to invest in depending on their risk profile. Mutual funds are composed of a variety of stocks, bonds, and money market investments. The income is taxed when the employee withdraws from the plan upon retirement.
Employers may choose to contribute up to a certain amount of money to the employee’s 401(k) plan when the employee elects to take the benefit. Employees are often restricted from withdrawing the money contributed by the employer until a vesting period is completed. Also, there are certain restrictions and penalties for withdrawing the money invested in a 401(k) before retirement.
Small business owners are busy managing their business and therefore are left with little time to take on administration of retirement plans. Thankfully, today there are many tools and services offered that make it easier for small business owners to administer 401(k) plans.
Technology. There are many technology tools are offered in todays market to help small business owners manage 401(k) plans. These are specific tools catered for small business owners. There are apps and technology tools today that allow companies to streamline the process of cost comparisons and automate the administration and assist employees with built-in investment advising.
Financial Services Company. Many financial companies also offer services to small business to help them manage their employee’s 401(k) plans and provide investment advice. Professional employer organizations, along with human resource and payroll assist in administration of 401(k) plans. When choosing an organization, it is important to choose one that has industry accreditation and minimum requirements.
Today’s recent graduates are strapped with student loan debts. Increasingly they are searching for employers who will look out for their interests and help them save. Furthermore, higher costs of living associated with rising housing costs has also put pressure on individuals’ finances and their ability to save for retirement.
Offering a 401(k) with employer contributions is an important benefit that will attract good employees. Once these employees know their employer is helping them save and creating ways for their money to grow, they are likely to remain and contribute to the small business. Happy employees will translate into higher productivity and lead to a profitable business.
For information or advice on small business matters, the small business law group attorneys at MacMain, Connell & Leinhauser offer a wide range of services. Do not hesitate to contact our West Chester office with any small business concerns. Contact us online or by phone at 484-318-7106. We serve clients throughout Pennsylvania.