Employees value retirement options that can yield earnings and tax benefits. Depending on the size and type of company retirement benefits that need to be opted into might not be opted into by all employees. Savvy employees will take advantage and look around for an employer with appropriate benefits for them, while others may not be as concerned. In order to attract and retain the savvy employees it is important to offer some sort of retirement benefit. There are many different options in the market, and here’s a guide on some of the most popular options including 401(k), and IRAs..
Let’s talk about the 401(k) to start which is a special investment account which allows working individuals to save for retirement. It allows working individuals an opportunity to avoid paying taxes on deferred compensation like bonuses or company stock options. In 1981 the Internal Revenue Service (IRS) came up with rules to allow taxpayers to put payroll deductions to their 401(k) plans. Here are some types of 401(k) plans.
Employer Matching 401k
Matching programs can vary widely by company, type of business, and sometimes economic forces. There is no one way to do an employer match 401(k) program. While some companies offer really generous 401(k) matches, others do not do any sort of matching their employees' retirement contributions at all. For the ones that do offer matching there are limits to matching, so it isn't an unlimited amount. For example, if an individual can afford to contribute half of their salary, it doesn't mean the company will match all of those funds. Some companies match up to 3% of employees' contributions of income, while others can be more generous matching up to 20%. A few companies do an automatic contribution based on percentage of income.
Traditional IRA
A traditional IRA is an individual retirement account that allows the employee to make contributions on a pre-tax basis and pay no taxes until you withdraw the money. At age 72 individuals have to start taking mandated annual required minimum distributions (RMDs) from a traditional IRA. Withdrawals are taxed as ordinary income. If withdrawals happen before age 59½, then there can be a 10% early-withdrawal penalty and state-tax penalties.
Roth IRA
A complete 180 from traditional, Roth IRA contributions are made with after-tax dollars. An employee can withdraw contributions to a Roth account anytime. Withdrawals are tax- and penalty-free. Withdrawal of earnings tax-free after age 59½ can happen if the account is at least five years old, or other conditions are met. If there is an early withdrawal of any earnings, the individual must pay taxes and penalties on them. There are no annual RMDs with Roth IRAs.
LHUI can help you plan and develop the right retirement plans and employee benefits. Our team of insurance brokers in Seattle, WA can help you decide and develop a comprehensive employee benefits package for your employees. No matter the size of your business, we will work alongside you to meet all of your coverage needs with creative solutions and expert guidance.
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