401k plans are a great starting point when planning for the future. A 401k plan is a savings account that allows employees to put away money for their retirement. When an employee opens a 401k plan through their work, the employer can sponsor the account and contribute to the funds. The money put into a 401k is pre-taxed, meaning that your funds allocated to the 401k plan reflect the amount before tax on a paycheck. Additionally, 401k plans can include stocks, bonds, and money market investments.
Numerous benefits result from a strong 401k plan. Here are 5 employee benefits of a well-managed 401k plan to help you feel secure and excited for the future:
Tax Benefits
Everyone pays income tax. With a 401k plan, there are incentives for employees to save for their retirement with the tax benefits from contributing a portion of their paychecks to their 401k. The amount allocated from the paycheck to the 401k goes directly into the account. The remaining amount on the paycheck is the portion to be taxed. So, instead of paying taxes on the full paycheck, employees only pay taxes on the amount after the contribution.
Compounding Interests
Interest earned on the savings in a 401k account can really add up over the years. As time and contributions increase, so does the interest. Compounding interests, as Ellen Chang from The Street puts it, is interest on interest. Basically, the more money, stocks, bonds, etc. in your 401k, the more interest you earn towards your retirement.
Loans & Early Withdrawals
Not every 401k plan is the same. Some employers may select plans that specify if and when an employee can borrow from their 401k. If an employee falls on hard times and needs to access their funds from their 401k, they can do it, but there will be some penalties. Taking out a 401k loan allows you to access the funds and pay them back to yourself with interest. If an early withdrawal is requested, the money is available to the account holder, but penalty fees may result.
Easy Enrollment
One of the greatest employee benefits of a 401k is how easy it is to enroll. Employees can enroll in a 401k year-round, and doing so is quick and easy. Once the account is set up, it’s up to the employee to figure out if and where they want to invest and how they want to manage their savings.
At LHUI in Seattle, Washington, our team of benefits experts can help provide your employees with the right 401k plan for them. Our philosophy is to take an individualized approach so that each situation receives the care and attention it deserves to get the best results.
Schedule a consultation with us today!