A 401(k) plan is a simple and effective way for your company to help meet your employees' retirement goals. 401(k) plans provide benefits to both employees and employers.
A well designed 401(k) plan can help you attract and keep talented employees.
It allows participants to decide how much to contribute on a pre-tax basis.
Employers can claim a tax deduction for their contributions to employees' accounts.
401(k) retirement plans can benefit all employees, including staff, line workers and management.
Contributions and earnings are not taxed until they are distributed.
Participants can roll over their plans and take their benefits with them if/when they leave the company.
There are several different types of 401(k) plans and many decisions to be made about the type of plan you will offer, including the amount employees are allowed to contribute and how much of their contribution will be matched by you, the employer. These details should be spelled out in a written plan.
A Traditional 401(k) Plan offers great flexibility. You can make contributions on behalf of participants or match employees' deferrals, or do both. You can specify that your contributions be subject to a vesting schedule. A traditional 401(k) allows participants to make pre-tax contributions through payroll deductions.
A Safe Harbor 401(k) Plan is similar to a traditional 401(k) plan, but employer contributions are fully vested when made. A safe harbor 401(k) is not subject to many of the complex tax rules that are associated with a traditional 401(k) plan, including annual nondiscrimination testing.
A SIMPLE 401(k) plan is not subject to the annual nondiscrimination tests that apply to the traditional plans. Similar to a safe harbor 401(k) plan, the employer is required to make employer contributions that are fully vested. This type of 401(k) plan is available to employers with 100 or fewer employees who received at least $5000 in compensation from the employer for the preceding calendar year.
(*Note: Both the traditional and safe harbor plans are for employers of any size and can be combined with other retirement plans.)
Starting a new business or have an existing business and considering starting a 401(k) plan? Call Fidelity Capital Management to discuss which plan is right for you and your employees: 610-972-4887