As an employer, you may want to establish one or more retirement plans for yourself and /or your employees. Having a plan can provide significant benefits for both you and your employees. There are many different types of retirement plans, however, and choosing the right one for your situation is a critical decision. You want a plan that will meet both your goals as the employer and the needs of any employees you may have. In addition, it is important to balance the cost of establishing and maintaining a plan against the potential Benefits.
General Benefits of retirement plans
By establishing and maintaining a retirement plan, you can reap significant benefits for both your employees and yourself as employer. From your perspective as an employer, one of the main advantages of having and funding a retirement plan is that your employer contributions to the plan are generally tax deductible for federal income tax purposes. Contributing to the plan will therefore reduce your organizations taxable income, saving money in taxes.
For many employers, perhaps the greatest advantage of having a retirement plan is that these plans appeal to large numbers of employees. In fact, offering a good retirement plan (along with other benefits, such as health insurance) may allow you to attract and retain the employees you want. You will save time and money in the long run if you can hire quality employees who feel well rewarded and more secure about their financial future tend to be more productive employees, further improving your business’s bottom line.
So, why are retirement plans considered such a valuable employee benefit? From the employee’s perspective, key advantages of a retirement plan may include:
- Some plans (e.g. 401 k plans) allow employee contributions. This gives employees a convenient way to save for retirement, and there contributions are generally made on a pretax basis, reducing their taxable income. In some cases, the employer will match employee contributions up to a certain level.
- Funds in a retirement plan grow tax deferred, meaning that any investment earnings are not taxed as long as they remain in the plan. The employee generally pays no income tax until he or she reach retirement age(the earliest 59 ½) to start taking distributions. Depending on investment performance, this creates the potential for more rapid growth than funds held outside a retirement plan.