Named after a section of the United States Internal Revenue Code, a 401(k) is a retirement savings plan offered to employees. It is an attractive component of an employee benefits package. The purpose of the 401(k) is to encourage employees to save towards retirement.
The 401(k) is a defined contribution plan in which a certain amount is deducted from the employee’s paycheck and deposited into the 401(k) account. A great way to make your 401(k) plan more attractive to current and potential employees is by opting to match the contribution. So, their accounts have both their contributions and yours.
401(k)s are of two types:
- Traditional 401(k)
- Roth 401(k)
The difference is in how they are taxed.
With a traditional 401(k), contributions are made from pretax income. This reduces the amount of taxable income. There is no tax on the contributions until the employee withdraws the money upon retirement.
In a Roth 401(k), the contributions are made from after-tax income. Therefore, the withdrawals are not taxed.
A 401(k) plan that is well thought out and well managed provides a great way to attract and retain quality employees. We will help you design a 401(k) plan that gives your business a competitive edge. Helping your employees save for retirement boosts the financial security of your staff. Contact us to find out how you can do this.
