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Advice on
offering a 401(k) to your employees |
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Article added or updated:
10/07/2008 |
Should you offer a 401k Plan to your Employees?
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A strong retirement benefit is a powerful tool for attracting and
keeping capable and committed employees. The costs associated with
administering such a benefit and the matching contributions to your
employees' accounts could turn into an expensive way to keep your people
happy. The government helps defray a significant portion of these
expenses and all participants, company owners included, defer taxes on
the wages they direct into a defined contribution plan. It's a good idea
to be sure that any retirement plan you set up makes the most of your
investment.
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Evaluate Your Needs
If you want to offer a way for your employees to contribute to their
retirement, there are two options: a SIMPLE (savings incentive match
plan for employees) or a full 401(k). Deciding which one to choose
depends on how much your company can afford to match, how much you
intend to save for yourself, and how likely your employees are to
participate.
The SIMPLE Option
For businesses with up to 100 employees, SIMPLE IRAs and the similar
SIMPLE 401(k)s are, indeed, fairly simple. You fill out a two-page IRS
form, pay a small fee and that's about it. In most cases, participants
(including employers) can put away up to $10,500 in a SIMPLE IRA and
$10,500 in a SIMPLE 401(k) in 2008. (In both instances these are pretax
dollars.) The company must match at least either 3 percent of the
salaries of employees who participate in the plan or 2 percent of the
wages of all eligible employees, including those who do not participate
-- and this employer match is immediately fully vested.
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The 401(k) Option A 401(k)
By contrast this option generates a lot of paperwork and costs several
thousand dollars per year. But participants can put away up to $15,500
per year (again, these are pretax dollars), provided the company makes a
slightly more generous match than the SIMPLE requires. The Rule of
Thumb: Generally, a full 401(k) makes sense once a company reaches a
payroll of about $500,000 -- or, alternatively, when you and your
participating employees combined contribute at least $20,000 in salary
deferrals and company matching.
Get Professional Advice
A 401(k) is not something you want to attempt on your own. Two kinds of
direction are in order: investment advice and plan design and
management. If you or someone you know is thinking about offering a
401(k) to their employees stop by our offices and well explore all of
your options.
S. Brett Anderson
Allsure Insurance Agency, LLC
banderson@allsureinsurance.com |
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As always, please check with your tax professional,
CPA or lawyer
prior to acting on any advice found here. We do NOT dispense advice on
any articles contained here.
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