Offering Retirement Plans to Employees

1. Help your employees accumulate wealth –employees can contribute significantly more to a 401(k) or similar plan than an individual IRA. Limits for tax-year 2023 are $22,500 plus an additional $7,500 if you are 50 or older. Here are limits for other plans. Plus, because of pre-tax contributions and tax-free compounding, retirement assets grow faster in a retirement plan than assets invested in after-tax accounts.
2. Get tax benefits – for example, by offering a 401k; employees can defer up to $22,500, which decreases their taxable income. Employer contributions toward an employee's retirement plan are tax-deductible as well. Plus, another benefit of saving with a tax-deferred plan is that the earnings on investments are also tax-deferred. In other words, you will not pay taxes on your earnings or investment gains until you make a withdrawal from the plan.
3. Attract and retain employees- Retirement plans, especially those with matching contributions, are attractive to employees. Having a plan in place can help attract the right talent to your organization.
4. Savings are automatic - Employees can sign up to have contributions to their retirement account taken directly out of their paychecks, ensuring money is invested regularly.

TYPES OF PLANS:

• Defined Benefit plan- Also called pension or 412(i) plans, a defined benefit plan is an employer-sponsored retirement plan that guarantees an employee will receive a certain amount of money in retirement. The amount of money an employee receives is determined by a formula usually based on years of service and salary. Benefits can take the form of fixed monthly annuity payments, or employees may receive a single lump-sum payment. In many cases, if an employee dies, his or her surviving spouse is entitled to receive benefits from the plan.
• 401(k), 403(b), 457(a), and 401(b) plans- These plans are one of the most prevalent among employers. 403(b), 457(a), and 401(b) plans are very similar to 401(k) plans, but they are for certain employees of public schools and tax-exempt organizations. Employers that offer 401(k) or similar plans to their employees may qualify for tax incentives, and employers have some flexibility in setting matching options for their employees. These are considered defined contribution plans, in that an employee contributes a defined amount each pay period. The employer handles the administrative work of deducting the contributions, adding them to the employee's designated 401(k) account, and contributing any match or profit-sharing contributions as defined in the plan document.
• SIMPLE IRA plans- Small businesses with 100 or fewer employees may opt to provide employees with a SIMPLE IRA plan. Like a 401(k), both employees and employers can contribute to the retirement plan. Employees contribute on a pre-tax basis, and employers are eligible for certain tax benefits. Unlike a 401(k), employers are required to contribute either a match of up to 3% or a 2% nonelective contribution for each eligible employee. However, employers do not have to meet the filing requirements of a traditional 401(k) plan. Another difference from 401(k) plans is that employees cannot opt-out of participating in a SIMPLE IRA if they are eligible; they must receive the non-elective company contributions if eligible.
• SEP plans- A Simplified Employee Pension (SEP) plan is similar to a SIMPLE IRA but catered more to self-employed or small business owners. The most significant difference between a SIMPLE IRA and a SEP is that employees cannot add elective contributions to a SEP plan — only employer contributions are allowed. When using a SEP plan, the employer also has greater flexibility in when and how much to contribute.

Non-qualified retirement plans