The benefits are an essential part of the compensation package of an employee. A famous benefit you may offer is retirement plan for the employees. In private industry, about sixty-six percent of the workers have access to the retirement benefits. Out of the retirement plans available, 401(k) plans are considered as the most popular.
What to Know about 401(k) Plans
401(k) plans are a retirement option that’s sponsored by employers, which enables the employees contributes pre-tax money to their own account. For this reason, the contribution lessens the tax liability of an employee while allowing them save for the retirement. Once the employee reaches a particular age, they get distributions from their account.
Some of the kinds of 401(k) plans are solo 401(k), SIMPLE 401(k), safe harbor 401(k), and traditional 401(k). You may also consider offering Roth 401(k) plans, which are almost the same with the traditional 401(k) plan. Nevertheless, the contributed funds to 401(k) are on post-tax basis, which just means that you take the taxes out of the wages of an employee before taking out contributions.
As an employer, your responsibilities may differ depending on the plan you have chosen. You need the same core 401(k) setup duties no matter what plan you have established at your business. If you are wondering on how to setup 401(k) plan for your business, follow these:
There are several employer responsibilities associated with setting up 401(k) plans for small business,. You might met with some charges for plan establishment. Establishing fees may range from $1500 to $3000 yet could be less or more depending on your business. Several companies might get the fees waived, yet this is usually reserved for the big companies.
Steps to Setup 401(k) Plan
1. Determine Who’s Maintaining and Establishing the Plan
First and foremost, you have to know if you’ll set up the plan on your own or ask for professional help or hire a financial institution. Setting up 401(k) plan and maintaining this on your own can be more efficient, yet it will take most of your time.
2. Make a Written Plan Document
You will have to make a written plan document. If a financial institution or professional is handling your plan, they will be the one in charge for this.
3. Arrange the Trust for the Assets of the 401(k) Plan
To start a 401(k) plan, you have to set up trust to hold the assets. It guarantees that the funds will only be used by every participant and the beneficiaries. To arrange trust, you have to choose a trustee. Deciding on the trustee is a crucial part of establishing 401(k) plan, as they should handle contributions, distributions, and plan investments.
4. Have Your Own Record Keeping System
You should come up with a way in keeping track of employer and employee contributions, plan investments, distributions, losses and earnings, and expenses. If you have outsourced your 401(k), your hired professionals will handle record keeping for you.
5. Distribute the Information of 401(k) to the Eligible Employees
For your employees participate in the 401(k) of your business, you have to inform them. Disclose the information like the plan’s features, benefits, and the rights of the employee.