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Should I Provide 401(k) Matching?

Man with 401k Blocks in front of fingers

Employees love to watch the value of their 401(k) grow. Employers who match 401(k) funds are providing one of the most popular employee benefits. The investment in these retirement savings accounts are tax-free, taxed when funds are withdrawn at retirement or when withdrawn early for another reason.

Types of 401(k) Plans

As an employer, you have two options:

  • Traditional 401(k): These retirement accounts are built with pretax dollars, with the benefit of reducing your taxable income. The money invested by the employee, and employer, can be written off as a tax deduction on annual tax returns.
  • Roth 401(k): These accounts are built with after-tax money, but when retirement comes around, the withdrawals from the account are not taxed. Employers do not have the ability to contribute to these accounts, only the employee. These accounts are only available to individuals, not company owners, but can be a good option for those who are self-employed.

How Much Should You Match?

Employers can match the full amount of the employee’s contributions, or a percentage, or may not offer matching. These plans have a maximum possible investment amount per year. The formula for matching funds is established by the company owners or financial managers. Some companies offer a dollar for dollar 401(k) match, up to a specific limit. This approach achieves the most positive response from employees, who see their retirement plan growing at a rapid rate. The longer they stay, the more it grows, a powerful incentive for valued employees.

Attract and Retain the Best Talent with Attractive Group Benefits

The job market is competitive, and the best talent may be fielding several appealing offers. As a candidate looks deeper into each offer, the 401(k) matching you offer can make a difference in appealing to the talent you want in your operation.

Custom Design Your Company 401(k)

Your business is unique in every way, and if you are planning to establish a 401(k) it should be custom designed by a professional. The issues to be decided include:

  • When an Employee is Eligible: New employees may be allowed to contribute immediately or designed for a waiting period.
  • Employer Contributions: A 401(k) can be designed for both employee and employer contributions. The amount the employer contributes to the account is outlined in the documents that establish the plan.
  • Loans: You can establish a 401(k) that allows employees to borrow from their account. While this can benefit employees who need a fast influx of cash, this feature adds complexity to the administration of the loan.

Where to Invest 401(k) Funds

Investing comes with risk, no matter how conservative your approach. The asset allocation should be established with professional help. Most 401(k) funds are invested in a mix of stocks and bonds. When the market takes a downturn, the value of the fund will diminish, but over time, these funds grow. In a positive financial environment, the fund earns untaxed interest.

If you are considering establishing a 401(k) for your business, we invite you to meet with one of our agents, who will work closely with you in planning the full range of group benefits.

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