As a business owner you need to be at the forefront of employee benefits and strongly consider offering a 401(k) plan to your employees if you do not already.
401(k) Q&A:
Q: What is a 401(k) plan?
A: A 401(k) is a type of retirement savings plan that allows employees to save by making pre-tax and/or after-tax Roth contributions from their paychecks into a choice of mutual funds based on their risk tolerance.
Q: Pre-tax contributions vs After-Tax Roth?
A: Pre-tax: Employees contribute to the plan before taxes are deducted from their paycheck – both contributions and earnings grow tax-free until they start distributions at which time, they become taxable.
After-tax ROTH: Employees contribute to the plan after taxes are deducted from their paycheck – both contributions and earnings grow tax-free and then all distributions from the plan are taken tax-free.
Q: As a business owner what are the benefits of offering employees a 401(k) plan?
A: Recruitment Benefits – Attracts and retains top employees. Offering a retirement plan has been reported as the second most important benefit that a company can offer right behind health insurance.
J.P. Morgan Asset Management conducted a retirement survey among U.S. small business owners ($50,000 – $20 million in revenue) in June of this year and almost half of these business owners (48%) offer some sort of retirement plan to their employers. Of those retirement plans being offered 87% are 401(k) plans.
Tax Benefits – Potentially lowers taxable income not only for your employees and yourself but for your business too.
Q: What are the costs associated with offering a 401(k) to my employees?
A: Recordkeeping Fees – These fees cover the daily accounting and trading of the account -typically run from .1% to 2% of plan assets.
Mutual Funds Fees – These fees cover the management of the mutual funds. The type of fund or funds the employees choose will determine the fee – typically from .05% to 1.5% of plan assets.
Investment Advisory Fees – These fees cover the cost for an advisor to review and provide fiduciary guidance on the plan-level investment choices – typically from .25% to 1.0% of plan assets under management. In addition, the advisor provides educational support to your employees.
Also, fees can be paid by the employer and/or employee.
DHJJ Financial Advisors
DHJJ has the financial advisors to guide you through the process of determining the best 401(k) plan for your business. We assist our clients by answering all of your retirement questions, conducting employee education meetings, reviewing investment funds, and ensuring that you are staying compliant within the law. Saving for a comfortable retirement is easy to do with DHJJ Financial Advisors.
