To win the war for talent, your business needs a competitive benefits package that includes a retirement plan. What’s more, many states now require businesses to offer a retirement savings plan for their employees.
There are pros and cons to offering a 401(k) versus an IRA, but federal legislation called the SECURE Act 2.0 has changed the game for small and midsize businesses, making it affordable to offer a 401(k).
There are lucrative tax credits available for employers with SECURE Act 2.0. However, you must take action. The cost of inaction could mean being required to participate in your state’s mandated plan or losing top talent to your competitors who are maximizing their 401(k) offerings and promoting it in their job postings.
401(k) or IRA?
401(k) plans are employer-sponsored retirement savings accounts that allow employees to contribute a portion of their salary on a pre-tax basis.
Individual Retirement Accounts (IRAs) are personal retirement savings accounts that employees can open on their own, and employers can choose to facilitate through payroll deductions. Many states are now requiring businesses to offer an IRA through their programs if the business doesn’t already offer a 401(k) or similar retirement option for its employees.
Before SECURE Act 2.0 went into effect, some businesses offered an IRA because employers serve a limited role. For instance, in California’s state-mandated program, businesses add and maintain their employee roster and submit contributions via simple payroll deduction. Also, there are no employer fees and employers do not make contributions to employee accounts.
However, the tax incentives provided by SECURE Act 2.0 in effect zero out 401(k) set-up and administration fees for many qualifying small businesses.
Employees often prefer having a 401(k) plan because
- it has immediate tax benefits for them,
- it’s hassle-free, with contributions automatically streamed from their paychecks,
- a 401(k) often comes with an employer matching part of their contribution, and
- a 401(k) has a maximum contribution of about 3 times that of an IRA to help employees reach their retirement goals
For many workers, a 401(k) is the superior employer-provided retirement benefit and they know it. Offering a 401(k) puts your business at an advantage over those who don’t when you’re recruiting and retaining talent.
A study cited by SCORE found that 94% of businesses that offer 401(k) plans said retirement benefits help drive recruitment. And over half of those businesses (52%) said retirement packages help attract better-quality employees.
401(k) vs State-Sponsored Retirement Programs
Most state-sponsored retirement programs operate on a post-tax deduction basis, auto-enrolling employees at 5% post-tax into a Roth IRA. With a 401(k), employees can easily contribute pre-tax, leading to immediate tax savings and a more manageable impact on their take-home pay.
With a 401(k) plan, you can offer employees a wide range of investment options tailored to meet individual financial goals and risk tolerance. This empowers employees to make informed decisions and customize their retirement savings strategy, providing them with more control over their financial future.
Offering a 401(k) plan can make your company more attractive to prospective employees, particularly in today’s competitive job market. It can also help retain existing employees by providing them with a valuable benefit.
Both employers and employees can enjoy tax advantages with 401(k) plans. Employers can often deduct the plan’s administrative costs, and employees can lower their taxable income by contributing to their accounts.
Many employers choose to offer a matching contribution, which encourages employees to save for retirement. This can be a powerful incentive for participation.
401(k) plans can be more administratively complex and costly to set up and maintain compared to IRAs. You may need to hire a third-party administrator to handle compliance and record-keeping. However, SECURE Act 2.0’s tax credits have made it easy.
For employers with up to 50 employees, the SECURE 2.0 Act includes a tax credit that covers 100% of the administrative costs, up to $5,000. Employers with up to 100 employees also get very lucrative tax credits.
Utilizing SECURE Act 2.0, businesses with 50 or fewer employees can claim a credit for the employer contribution for the first five tax years starting when the plan is initiated, up to $1,000 per employee. Your business can claim 100% of the employer contribution in the first and second tax years. Then, claim 75% in the third year, 50% in the fourth year, and 25% in the fifth year. For employers with 51 to 100 employees, the credit is slightly reduced.
Either way, your small or midsize business has never been in a better position to compete for talent against major corporations when it comes to your retirement offering. Only 28% of businesses with fewer than 10 employees offer a retirement plan. 51% of businesses with between 10 and 24 employees offer a retirement plan. Compare this to companies with over 100 employees – 87% offer a retirement plan, according to SCORE.
By choosing Asure, you pave a path for your employees to save for their golden years, ensuring peace of mind for the future. For your employees, the benefits are clear: they contribute pre-tax dollars, leading to immediate tax savings and a potential for a stronger financial future. And when you match their contributions, you supercharge their savings potential.
For your business, the benefits are twofold. First, every dollar contributed to employee 401(k) plans is tax-deductible. And when you maximize your use of SECURE Act 2.0 legislation, businesses establishing new 401(k) plans can also qualify for special tax credits. If you’re part of the 71% of businesses without a retirement plan who think set-up costs are too expensive, don’t miss out on new tax credits that erase all the set-up costs for qualifying businesses.
Setting up and managing your 401(k) is a breeze with Asure because our platform offers simplicity, seamless integration, and dedicated support.