The world is ever-changing, but one thing remains constant, Americans need a healthy nest egg in order to retire comfortably. At a time when health and money are top thoughts in most of our minds, now is a good time to consider offering your employees a tax-deductible way to save, such as a company-sponsored retirement plan. Not only does a 401(k) help your employees and boost retention, it also offers many benefits for the company as well.
Here are five reasons to start a company-sponsored retirement plan:
1. The Secure Act Offers Meaningful Tax Credits
One of the most compelling incentives for starting a retirement plan is the significant tax credits afforded by the SECURE Act. Small businesses that sponsor a retirement plan for the first time are eligible for a tax credit of up to $5,000 per year for three years. Additionally, any small plan that implements automatic enrollment is eligible for a $500 credit for three years. This applies to both existing and new plans and can be combined with the start-up tax credit for additional savings. Thanks to these credits, starting a 401(k) has become incredibly affordable. In instances where you pass some expenses on to participants, you might not end up paying any fees for recordkeeping or other services for up to three years.
2. Take advantage of Company Tax Deductions
Employers are not required to match employee contributions unless the employer has opted into a Safe Harbor Plan. Safe Harbor Plans have many incentives, and many businesses offer them as a way to reward employees and help them save faster which increases employee loyalty. Employer contributions are tax-deductible, and they are not subject to Social Security or Medicare taxes for employees or employers.
3. It Can Reduce Individual Taxes – Especially for Owners
At a time when financial stress is at an all-time high, reducing taxes now while saving for a financial future can be a big incentive. Annual pre-tax contribution limits are $19,500 a year as of 2021, with an extra $6,500 in catch-up contributions for those over 50 years of age, which means you can reduce your taxable income by up to $26,000 a year. Business owners can save even more. With certain profit-sharing plans, business owners can save as much as $57,000 a year for themselves before taxes or $63,500 with catch-up contributions.
4. You Want Your Employees to Retire…Eventually
According to Simplywise.com, in 2020, 72% of employees said they planned on working after they claim Social Security retirement benefits. While this is an issue for individuals, it can also be an issue for businesses, specifically when it comes to rising payroll costs. A recent survey showed that 49% of employers are concerned that delaying retirement will raise benefits costs, 41% worried it would force an increase in overall wage and salary expenses, and 37% feared it would block younger employees from promotions. Offering a 401(k) plan not only helps your employees prepare for retirement, but it could also help with their view of your business.
5. Employees Want Your Support
52% of U.S. employees state that finances are their biggest concern. Not only that, but 47% believe their employers have a responsibility to address their financial wellbeing (up from 40% pre-COVID). Offering a company-sponsored retirement plan allows you to educate and support employees when it comes to their financial future.
If you are interested in implementing a plan on or before January 1, 2022, here are some deadlines to consider:
- November 1, 2021: Deadline to agree to move an existing 401(k) plan to CorPay Retirement Services for a January 1, 2022 start date as well as the deadline for terminating a SIMPLE IRA and moving it to a 401(k) plan structure for 2022.
- November 15, 2021: Deadline to start a new plan for a January 1, 2022 start date. This can maximize your tax benefits for the 2022 calendar year.
The financial health of a company is important, and the people working for a company are what make that financial health happen. Offering a company-sponsored retirement plan is not only surprisingly affordable but can benefit the company and its employees for years to come by helping employees to have greater financial security and greater engagement with their employers.
Contact us today to learn more