The term “401(k)” is commonly used when discussing employee benefits, but not everyone knows what it entails. A 401(k) account is a retirement savings fund that is employer-sponsored. Employers typically offer 401(k)s as an incentive for potential employees to apply, as well as remain in the company. Plus, offering employees 401(k) plans can also provide businesses and employers with annual tax credits, making it a beneficial provision for both parties.
To help you navigate the difference between the types of 401(k) plans, here’s a breakdown of the traditional 401(k) vs. a Roth 401(k):
Traditional 401(k)
A traditional 401(k) plan is a retirement savings account that you can invest in through the workplace, sometimes with employer matching. The funds that you place into your 401(k) enter the account before they’re taxed, making the 401(k) a pretax savings account.
A 401(k) fund makes saving for retirement easier because the funds are taken out of an employee’s paychecks automatically. The funds are placed into their respective 401(k) accounts, where they are typically matched by the employer, making the 401(k) plan a popular benefit for employees.
Roth 401(k)
A Roth 401(k) is similar to a traditional 401(k), but definitely not the same. In order to open a Roth 401(k), employees need sponsorship from the workplace. Once an employee obtains the Roth 401(k) account, they’ll be able to start adding funds and receiving potential employer-matched contributions.
One thing that makes a Roth 401(k) account stand out is its withdrawal process. After a person reaches retirement age, they can then pull out funds from their account without being taxed on the amount. Plus, as the funds grow, account holders will not be taxed on the increased amounts.
Navigating the field of employee benefits and 401(k) accounts can be tricky for employers. There are tons of different options out there, and selecting the best fit for your employees isn’t always easy. At LHUI, our team of expert insurance brokers can help your business or organization create a benefits package that checks all of the boxes for your employees. To schedule a consultation with one of our team members, give us a call at 206-397-8012 or fill out our short online contact form. Let us help you find the perfect solutions for your business!