As a business owner, one of the main ways to attract and retain top talent is to offer competitive retirement planning benefits. Not only that, but if you care about your employees’ financial well-being, you want to provide them with the resources they need to prepare for the future. A retirement savings plan is an excellent way to help them do just that. Many types of accounts are available, but 401(k)s are particularly popular for their tax advantages and employer contributions. If you’re looking for 401(k) planning services, look no further than Nesso Tax.
At Nesso Tax, we’re a team of financial advisors in Meriden experienced in helping businesses set up and manage their 401(k)s. Whether you’re looking to start a new plan or expand an existing one, we’ll navigate you through the process and ensure everything is correct. Our mission is to provide a plan that fits your business’s needs and facilitates growth. We have a track record of success working with companies of all sizes, industries, and goals. Contact us today; we’ll answer your questions and put you and your team on the path to a secure retirement.
What Is a 401(k) Plan, and Key Takeaways
First, you should know what retirement plans are and what differentiates a 401(k) from other savings accounts. A retirement plan is an agreement between an employer and employee that allows the latter to set aside money from their paycheck. The funds are then invested, accruing interest and growing over time. The two main kinds of employer-sponsored plans are defined benefits (DB) and defined contribution (DC).
- Defined Benefits Plans: Also known as pension plans, these provide a guaranteed level of income based on the employee’s contributions and years of service. DB plans are slowly becoming obsolete due to their costs and lack of flexibility.
- Defined Contribution Plans: These are much more popular than DB plans and include 401(k), 403(b), 457, and IRA accounts. With a DC plan, the employee contributes money to the plan, and the employer may match these contributions. The returns aren’t guaranteed but depend on the performance of the investments chosen. Lastly, because the employer has no liability for the funds, DC plans require less administration, are low risk, and cost less.
A 401(k) is a type of DC plan that gives employees the greatest potential to save for retirement because of its tax advantages. At Nesso Tax, we’re here to tell you everything you need about 401(k) plans.
401(k) Key Takeaways
Regarding 401(k) plans, there are some key takeaways to remember:
- The employer and employee can contribute money to the savings plan up to the IRS’s annual limits.
- Investment performance determines how much the employee will receive when they retire.
- Employees can access their funds without penalty before retirement age only if they meet specific requirements.
- Employees can contribute with pre-tax dollars, depending on the type of 401(k).
- Employer contributions are usually tax-deductible.
- The earlier you start contributing, the more money you’ll have when you retire.
How 401(k) Plans Work
The 401(k) section of the Internal Revenue Code (IRC) explains the rules and regulations governing these plans. Here, we’ll discuss the three main components of a 401(k): contributions, investments, and withdrawals.
- Contributions: For 2023, the annual contribution limit for a 401(k) is $22,500. Those over 50 can contribute an additional $7,500 to catch up, increasing the total limit to $30,000. Employers may also contribute to employee accounts if they choose to. The maximum employer-employee combined contribution amount is $66,000 for individuals under 50 and $73,500 for those over 50.
- Investments: Employees can allocate their money among several assets, including stocks, bonds, and mutual funds. Stocks are considered higher-risk but also have the potential for more rewarding returns. Bonds tend to be more conservative investments, and mutual funds contain a mix of both bonds and stocks. The 401(k) plan should reflect the participant’s risk tolerance and retirement goals. If help is needed, most employers offer guidance from a financial advisor.
- Withdrawals: The 401(k) money is intended for retirement, and participants shouldn’t withdraw it before reaching 59 1/2 years of age. Those who choose to access their funds prematurely will incur a penalty of 10% of their withdrawal amount. However, this rule has some exceptions, such as medical bills or financial hardship.
About Employer Contributions
As we mentioned, the employer also has the option to contribute funds to employees’ accounts. This could come in the form of the following:
- Matching Contributions: Employers match employee contributions dollar-for-dollar up to a certain percentage or limit.
- Non-Matching Contributions: Employers contribute a certain amount of money to all employees, regardless of whether they contribute.
Ultimately, each employer decides its contribution method and what percentage of the employee’s contribution they’ll match. Our professional financial planners in Meriden can help you assess each option and make the right choice for your business.
Why 401(k) Plans?
Contributing to a 401(k) plan offers several advantages for employers and employees. These include pre-tax contributions, convenience, and flexibility.
- Pre-Tax Contributions: For employees, 401(k)s provide a way to reduce taxable income by contributing pre-tax dollars into their fund. This way, they can reduce taxes paid in the current year and allow those funds to accumulate interest without taxation until withdrawal. Employers also benefit from tax breaks because contributions to an employee’s account are tax-deductible.
- Convenience: 401(k)s are simple to set up and easy to manage. Employers can choose from various plan types with unique benefits and features to meet their needs. The investment options are also varied, allowing employees to tailor the portfolio to their personal goals. They can also enjoy automatic payroll deductions, so they don’t have to worry about manually making contributions.
- Flexibility: Employees can change the contribution amount anytime throughout the year or switch funds if needed. Employers can also adjust contributions based on business needs or economic conditions. Furthermore, employees can take their 401(k) funds with them if they change jobs, making it a great way to maintain retirement savings.
How We Can Help with Business 401(k) Planning in Meriden
At Nesso Tax, our experts are well-versed in business 401(k) planning and are here to help you explore your options. So that you can concentrate on operating your company, we’ve made the setup and management process simple. You’ll also access tools and resources to make sound decisions.
What Our Services Entail
Employers can take advantage of tax breaks by contributing to an employee’s 401(k) plan. You’ll be able to reduce your taxable income while providing employees with a valuable benefit. Additionally, employees may defer taxes on their contributed money until withdrawal.
Flexible Contribution Amounts
Our scalable contribution limits allow you to save as much or as little as you desire. But you shouldn’t just set a contribution amount and forget about it. We can help you adjust it as your financial situation changes over time.
We’ve already discussed the different investment options in 401(k) plans. We can help you choose the best investment options for your employees based on their risk tolerance and other factors. They’ll make all the critical decisions about investing their money, but we’ll offer guidance and advice.
Participant loans allow workers to borrow money from their retirement savings. Generally, these loans are subject to favorable interest rates and repayment terms if repaid within a specific timeframe. We make it easier for employees to access these funds for emergency expenses without resorting to high-interest consumer debt.
Why Choose the Nesso Group
Our Long Term Vision
As part of the Nesso Group, we look beyond the present and focus on preparing for your future retirement. We believe in long-term planning to get you closer to your financial goals. We’re not just a one-time service provider—we want to be your long-term advisor.
Our Holistic View of Your Taxes
We take a comprehensive approach to tax planning, looking at the big picture and how your tax obligations fit into your financial plan. We’ll analyze all aspects of your current situation so that we can deliver effective financial services in Meriden.
Our Defined Goals Regarding 401(k) Planning
- Guiding your financial health and strategies
- Planning for the future
- Offering competitive benefits to your employees
Our Proven, Three-Step Process
- Connecting With You: Our team will contact you promptly once you complete our online form. We’ll ask you a few questions to gain insight into your needs and goals so we can develop the best plan for your business.
- Creating The Plan: Our experts will create a tailored 401(k) plan designed to meet your requirements and provide maximum benefit for your employees.
- Implementing The Plan: We’ll handle the setup and management of your 401(k) plan, so you don’t have to worry about a thing. You can focus on running your business while we handle all administrative tasks. If you have questions or any challenge arises, our team is always available to help.
Improve Your Financial Management in Meriden with Nesso Tax
As you can see, there are many benefits to restructuring or creating a 401(k) investment plan. However, you must understand a 401(k)’s tax implications before you start. At Nesso Tax, our team of professional tax advisors in Meriden, CT, has what it takes to assist you in navigating the complexities of a 401(k) plan. We’ll guarantee your decisions are sound and compliant with IRS regulations. Our advisors are committed to helping you pursue your financial goals and enjoy a secure retirement. Contact the Nesso Group today to learn more about our tax services.