The 401(k) is the most popular qualified retirement plan among employers and employees. These plans allow employees to make voluntary pre-tax salary deferral contributions by payroll deduction. In some cases employers will “match” employee contributions.
In 2020, employees are able to defer up to $19,500, and anyone 50 or older may defer an additional $6,500 “catch-up contribution” from their pay.
The “Roth” Provision
Additionally some plans may offer a “Roth” provision. Contributions to Roth accounts are not tax deductible. However, distributions from the plan are not considered taxable income.
These plans offer employers and employees a number of benefits:
- Competitive Advantage – A 401(k) is an excellent benefit that employers can offer to attract and retain employees.
- Tax Advantages – Employees reduce taxable income by contributing to a 401(k) plan. Contributions and investment earnings grow tax deferred and create potentially greater savings for your retirement. The employer may receive tax benefits for any “contribution matches” that are made on the employees’ behalf.
- Control – Depending on the plan’s design, a 401(k) can provide employees with a greater sense of control over their retirement because they have the freedom to determine how their contributions are invested from a wide array of investment options. Employers also can exercise control over many of the plan features and benefits.
- Convenience – Payroll deductions enable employees to save for retirement automatically.
How Can Greenwood Capital Help?
Greenwood Capital may be able to assist you with an Employer-Sponsored Retirement Plan in a couple of ways: If you currently participate in an employee-sponsored retirement plan, please let us know. We can help you navigate the nuances of your plan and assist you with investment allocation decisions given your specific situation, outside investments, etc. If you have a retirement account with a previous employer, we can help you analyze options available to you for those funds as well.
As an employer offering or considering offering a retirement plan, Greenwood Capital can help you understand and navigate the various plan options available. This could include conducting an analysis of your existing plan, design, investment options, etc.
Making the Best Decision
There are a variety of decisions to be made as either an employee with a 401(k), or as an employer offering a 401(k). If you have questions about your specific situation, please let us know. As always, thank you for allowing us to serve as your financial advisor.
Greenwood Capital is an SEC registered investment advisory firm. This material has been prepared for information purposes only, and is not intended to provide, and should not be relied on solely for tax, legal or accounting advice.