As a contractor, you’ve spent years forging valuable relationships with many of your workers. Loyalty and integrity are two important values in the construction industry, but this road goes both ways, and your workers want to know that they’ll have the financial security to live out the rest of their life in quietude when the time comes for them to hang up their hard hats for good.
Historically, one of the most successful ways to help employees prepare for retirement is through the use of a traditional 401(k) plan. In this two-part article, a Jacksonville construction lawyer from Cotney Construction Law will discuss the importance of retirement savings plans and detail the role Ted Benna, otherwise known as “the father of the 401(k),” continues to play as he aims to help more and more employees save for retirement.
Of course, as an employer, you are partially responsible for providing your employees with the tools to achieve their dream of a financially safe and sound retirement. If you’re not sure how to get started, our Jacksonville construction lawyers can guide you through the legal obstacles of providing your employees with this valuable service.
What is a 401(k) Plan?
When it comes to making investments, you want to diversify your interests to ensure that risk is mitigated and funds are safe from unpredictable shifts in the market. This same theory applies to tax diversification. Contributing to a 401(k) plan can help your employees reduce their taxable income while simultaneously providing them with a high-value, relatively safe retirement savings option. There are two main options:
- Traditional 401(k): with this employer-sponsored retirement savings plan, contributions are added before taxes, thus reducing your current adjusted gross income. When the time comes to collect distributions in retirement, they will be taxed as if they are normal income. Additionally, penalties exist for those who withdraw before the age of 59½ unless other specific criteria are satisfied.
- Roth 401(k): contributions are added after taxes, which don’t affect your adjusted gross income. Any funds that your employer matches are placed in a pre-tax account. These funds will be taxed after being distributed. There are no taxes on “qualified distributions” during your retirement. The IRS will consider a distribution qualified if the account is five years or older and the distribution is either related to a disability or death, or occurs on/after the age of 59½. The major benefit of this type of savings plan is that you could potentially save earnings for decades and never pay taxes on them.
From Spender to Saver
According to Ted Benna, “The greatest benefit of a 401(k) is that it turns spenders into savers by making saving the first priority.” As the author of five books, such as the aptly named “401(k) for Dummies,” Benna can teach employers a lot about the benefits of these important retirement savings plan. In part two, we will delve further into the ins and outs of 401(k) plans.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.