If you answer any of these questions with a “yes” check out the many small business 401(k) options available to upgrade your 401(k) to work better for you and your employees.
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Think that 401(k) plans are just for large businesses with a budget to match?
We specialize in helping small and startup companies and their employees reap the rewards of tax-deferred retirement savings—without the complexity, and without the big price tag.
With a small business 401(k), you (and your employees, if you have them) can save for retirement while lowering your taxable income. Contributions you and your employees make to a 401(k) plan are contributed on a pre-tax basis. In the short term, that translates to a smaller tax bite on your annual salary. In the long run, it means your investments grow tax-free until you’re ready to retire.
Thinking about starting a retirement plan for yourself or your small company? Read on to get the facts from this complete guide to 401(k) plans made easy.
If you’re looking to maximize your tax benefits and take advantage of higher contribution limits, a 401(k) will allow you to take advantage of many savings features.
We all have goals for how we’d like to spend our retirement. Maybe you’d like to travel the world. Maybe you’d like to have something to leave for your loved ones. Maybe you just want to make sure you can provide for yourself and your family after you retire.
Whatever your goals, saving in a 401(k) plan is one of the best ways to achieve them. By setting aside relatively small amounts from your pay today, and letting your savings grow through your working years, you can make sure you have income when you stop working.
Get started saving now, so you can have the freedom to choose how you want to live when you retire.
Both 401(k)s and IRAs are both great ways to save for your retirement and lower your taxes. There are two big differences between a 401(k) and IRA – with an IRA, you have to set it up yourself, and the amount that you can save pre-tax is a third of what you can save in a 401(k). 401(k) plans are established by an employer, including an owner-only/sole proprietor business. They also allow employers to contribute to their employees’ retirement savings, up to 25% of the employee’s compensation.
401(k) plans have higher contribution limits for you (and your employees, if you have them). Contribute up to $19,500 for 2021, plus up to $6,000 in “catch-up” contributions if you’re 50 or older. With an IRA, 2021 maximum contribution is $6,000, plus $1,000 in catch-up contributions if you’re 50 or older.
You don’t actually have to choose between a 401(k) and an IRA to save for your retirement—you can contribute to both – but there are rules to do so.
When your employees defer a percentage of their income, the company can match it and create parameters to match the deferral amount.
You can set the matching amount at a %, (i.e. match the first 3%). And you can set a vesting schedule — meaning that the 3% match vests after several years of employment.
Increases employee engagement levels. Employees appreciate when companies invest in their retirement.
Auto enrollment has been shown to increase participation rates among staff and better prepare your employees for retirement.
Set a base deferral rate for employees upon enrollment (3% for example) with an option to opt out whenever they choose.
Improves employee retirement readiness. If your employees are unlikely to enroll on their own they could lose out on valuable compound growth opportunities.
A provision added to your 401(k) plan that gives you a pass on most compliance testing.
Requires an annual employer contribution that is immediately 100% vested.
With Safe Harbor, the company 401(k) plan will have reduced testing requirements, and employees benefit too with an annual 401(k) contribution from their employer.
Every year, based on your business's success, you can give your employees a retirement bonus through a Profit Sharing Plan.
As defined in the plan document, this can be a discretionary contribution each year distributed to your eligible employees. There are several ways to allocate those dollars.
Not only are you sharing your business success with your employees, but you control how much is contributed each year—less in lean years and more in good years.
Can help business owners realize tax deductions and savings rates up to 4x more than with a stand-alone 401(k) plan.*
Reduce personal taxable income and accelerate savings. Cash Balance is designed for high-net-worth owners of small businesses with steady revenue.
Adding a Cash Balance Plan reduces the business owner's taxable income and increases the owner's savings rate, and benefits employees too with an employer contribution into their 401(k).
A Roth 401(k) option allows you and your employees to contribute post-tax earnings toward retirement.
A Roth costs very little, if anything, to add on to your existing 401(k) plan.
Add a Roth option to your 401(k) plan anytime to give your employees different tax strategies in retirement.
If your business has 100 employees or fewer, there are options outside of a traditional 401(k) that may better suit the needs of your business and employees.
SEP IRAs are easy retirement plans to set up, and are best suited for people who are self-employed or small businesses with only a handful of employees. Only employers are allowed to make contributions, which can reduce taxes as a business expense. Those contributions go to a traditional IRA held in the employee’s name, and contributions can be as much as 25% of an employee’s income (or up to $58,000, whichever is less).
SIMPLE IRAs, along with SEP IRAs, are among the easiest retirement plans to set up and run. SIMPLE IRAs have similar benefits to a SEP IRA, with one key difference: Employees can contribute to them. This makes it appealing to employees looking to contribute their own money, and business owners who don’t want to hire someone to run the plan or spend a lot of time dealing with government non-discrimination testing or plan design. Businesses with SIMPLE IRAs do not have vesting schedules for their employees, and aren’t required to report taxes at the plan level—but they are required to make employee contributions.
*Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. Federal tax laws are complex and subject to change. This information is not intended to be a substitute for specific individualized tax or legal advice. Neither Woodbury Financial Services, Inc., nor its registered representatives, offer tax or legal advice. As with all matters of a tax or legal nature, you should consult with your tax or legal counsel for advice.
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Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against a loss in periods of declining values. Asset Allocation and Diversification does not guarantee profit nor is it guaranteed to protect assets.
Andrew Chou offers Securities and Advisory services through Woodbury Financial Services, Member FINRA and SIPC, a Registered Investment Advisor, . This message is intended for residents of the Unites States of America in certain states only. Please check with us to make sure we are registered in your state. Woodbury Financial Services does not offer tax, estate, accounting or legal advice.
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