What Employers Should Know About 401K Plans
As an employer, you want to offer the best options to your employees so you can stay competitive within your industry and attract the best employee to help build your business. One of the best ways to do this is by offering your employees 401k plans. These plans are one of the most common types of retirement options provided to employees through their companies. However, many companies struggle with deciding whether or not they should offer this option to their employees. One reason is that providing these plans to employees leaves the door open for a 401k audit. If you stay ahead of the curve, you can manage the audits on your own so you have the ability to offer this retirement option to your worker, while simultaneously being in control of when and who does your company audits. If you’re in the Cutler Bay area, Joyce CPA LLC provides all the auditing services you need.
Everything You Need To Know About 401k Plans
These plans provide employers and employees with a flexible and easy way to put money aside for retirement. If you are a new employer or have never offered 401k benefits before it is imperative that you completely understand the basics of how the plans work to make sure that they are the right choice for your organization.
- What is a 401k?: These investments plans allow the employees of a company to put aside a percentage of their salary into a retirement account. The money put in is then invested into a combination of mutual funds, stocks, bonds, savings accounts, as well as other investment opportunities. Both employers and employees can save money on taxes as well through these plans.
- How is the employer involved?: When it comes to these investment plans, employers are not required to contribute to their employees’ 401ks. This is what sets them apart from pension plans. However, many employers offer to match any 401k contributions made up to a certain amount. Due to this level of flexibility, the overall costs of offering these plans to employees is much more manageable.
- Why should an employer offer a 401k?: The main reason many companies provide these types of plans is to attract and keep the top talent in their industry and at every level of the company. The reason employees are so attracted to companies that offer these plans is because they provide an easy, cost-effective way to plan for their retirement.
- Are there requirements for 401ks?: The IRS has set up some conditions surrounding 401ks
- Contribution limits: There are two contribution limits for these plans. One is for employee contributions, and the other is for the overall contributions, which include what the employer and employee put in.
- Distribution rules: The money that is put into one of these plans increases tax-free, but when an employee withdraws money they have to pay taxes on it. Because of this, there are specific conditions that need to be met for withdrawals to happen. For example death, disability, leaving a company, or if the employee reaches the age of 59.5 or experience a hardship in life.
- Limits on high-income earners: If an employee’s annual income or percentage in a company meets a specific level established by the IRS they may only contribute a portion of their earnings into their 401k. The IRS performs random testing to ensure that these high earners aren’t putting more money into their funds than other employees in the company.
Once a company reaches 100 participants in their 401k program, they may need to have a 401k audit done. This is why it’s important to find a company that you can trust to help you through the process.
Joyce CPA LLC is located in the Cutler Bay, FL area and specializes in assisting small to mid-sized companies conduct a 401k audit, reviews, compilations, and tax services. It is our job to help our clients understand what goes into providing 401k plans to their employees. Call or visit us today to find out how we can help your organization!