Advantages Of A 401(K)

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Thinking about a 401K plan? Read on to learn why this can be a great way to save for your retirement.

• Money & Finances: Saving • Money & Finances: Taxes & IRS

Every business, no matter the size or type, can establish a 401(k) plan. It doesn’t matter if you are a Sole Proprietor, S Corporation, Partnership, or C Corporation you can take advantages of a 401(k) plan.

Not everyone entering the work force is thinking about what life will be like when retirement age approaches. If you’re one of those who isn’t thinking about it, then you should be. If you’re an employer, offering a 401(k) plan is a good incentive for prospective employees to choose to work for you.

Here are a few advantages of being part of a 401(k) plan:

  1. Contributions that are made to the 401(k) plan can come from different sources. They can be voluntary deducted from the employee’s salary, paid solely by the employer, or in the best case scenario for the employee, both. In the last option, the employee makes a voluntary contribution that is matched (up to a certain point) by the employer. You can usually select the maximum allowed amount withdrawn, but the employer will only match so much.

  2. As of 2015, an employee can have as much as $18,000 withdrawn or they can have 100 percent of the compensation withdrawn. It depends on which is less. If you got a late start and you’re over 50, you will be behind and your monthly paid amount after retirement will be too low. They allow you to make $6,000 extra to help you catch up.

  3. Each employee will be immediately vested 100% vested reduction tax-deferred contributions to the 401(k) with their salary.

  4. An employee can retire at age 55 or after without paying a penalty. Turnkey and Internet based plans are available.

  5. The 401(k) plan offered may have investment accounts which are self-directed. They may also allow purchase of company stock.

  6. The amount an employee contributes is deducted before taxes are paid.

  7. Earnings and Investment gains made on the 401(k) are also tax free until you begin receiving a payout from the account.

  8. Participants can start, stop contribution during the course of the year, as determined by the company.

  9. If something happens and you need to, you can withdraw from the 401(k), borrowing against your own money. Hardships do occur and this gives you a cushion in case you fall on hard times.

  10. There are some tax benefits available for the employer for the contributions they make.

As you can see, there are many reasons 401(k) plans have become so popular with employees. Whether you are an employee or employer, 401(k)s are worth looking into. Of course, these retirement plans may not be for everyone so be sure to go read Disadvantages Of A 401(k).