401(k) - Real Benefits

‘Employee Benefits’ brings to mind many different things for as many different people, but for my money, the 401(k) is the most beneficial to both employees and employers.

Real Benefits for Employees: Unfortunately, some benefits offered by employers go unused by most or all their employees, and without the proper education, the 401(k) could fall into this category. Luckily, it doesn’t take much for most people to see the potential of putting even a small fraction of their paycheck towards a 401(k). In addition to the investment and retirement benefits, there are also emergencies that come up in everyone’s lives where a bit of cash is needed. Very few people have the extra cash lying around. Fortunately, for those with a 401(k), most plans allow you to “borrow” from your account. There is usually no penalty for this, and most of the time, you’ll be paying yourself back with interest. You can also take an early withdrawal, which would come with a penalty if you are under 59½ years old and if you can’t or don’t plan on paying yourself back. Neither of these are recommended uses of the 401(k), but from the actual people I’ve spoken to about their personal plans, they are greatly appreciated when the need arises.

Tax Benefits: There are tax benefits in 401(k) plans for both employers and employees. Employees have an opportunity to invest and defer their tax payments until they withdraw, allowing more of their investment to benefit from the compounding interest. Employers can essentially increase payroll by adding to the 401(k) without subjecting the increase to payroll taxes.

Recruitment Benefits: Most professional level employees today expect some type of 401k package from employers. Many employees you’ll try to hire will already have 401(k)’s from previous employers that they’ll want to roll over. For most plans, this isn’t an issue. However, not having a plan already set up could scare off potential employees. Cost shouldn’t be a factor. Most plans have options that cost the employer nothing. Employees contribute 100% of the investments and any fees associated are taken from those contributions. Employers can always change this down the road and start contributing. There are legal limits to how much employers can contribute to a 401(k), and you can be sure that the most competitive companies out there are meeting those maximums in order to draw the top talent from around the world.

If you have any questions, or would like some more information about 401(k)’s, please reach out.