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As an employer, you are in charge of the financial security of your employees. However, your responsibilities do not end once they leave your service. You need to make sure that you have a good retirement plan in place for your employees to make use of. They will be allowed to draw retirement funds for every firm that they have worked for, and this includes yours.
It does not matter whether they work with you for one month or 30 years, you need to make sure that you have a good retirement savings plan in place for them to use. Here are some of the things that you need to know about retirement savings plans for your employees.
Set up the Infrastructure as You Prepare for Employees
Taking the jump from a business where you are the only worker to one that has even just one employee means that you have to fill in a lot of different forms and make a variety of changes to your business. Once you have done this for one employee, you will be able to replicate it across others, but getting it right in the first place is going to be extremely important.
You could get in serious trouble with the authorities if you do not set up things correctly. From insurance to retirement plans, it all needs to be in place before you hire someone. Make sure that your business is prepared to handle and manage your employees, even if you have not even posted your first job advert yet or even considered how you might onboard them once you have employed them.
Find the Right Retirement Plan for Your Team
One of the most important steps you need to take when setting up for new employees is to decide on the type of retirement plan that you want to offer your team. After all, there are several types of accounts that you could offer. There are even some that allow your team members to bring a retirement plan with them between jobs, so even if they end up working for multiple companies across their career, they will still have one single retirement fund to pull from.
Each of the various retirement plans have their own pros and cons, so it is vital that you do your research to determine which one is right for you. After all, different sizes and types of companies might prefer to have a certain type of retirement plan compared to others even in the same industry. It is important to think about what might be right for your business, so make sure you do your research to track down the right one for you.
You also need to make sure that you have picked the right plan that can benefit you too – after all, you need to think of your retirement! Luckily you can have a retirement account when your self-employed, you just need to ensure that you choose the right sort of account.
Traditional 401(k) vs Roth 401(k)
Two of the most common retirement plans that you might choose from are the Traditional 401(k) and the Roth 401(k). They each have their own advantages when it comes to savings and tax, so it can be wise to think about what can be best for your company.
With the traditional 401(k), any contributions that the employee wishes to make will be deducted from the employee’s gross income – so it is taken before income tax has been deducted. This has its benefits as it means that their taxable income for the year is reduced and no taxes are due on this saved money until it is withdrawn in retirement.
Not all companies offer a Roth 401(k), so you need to make sure that this is going to be a viable option for your company. With this style of plan, contributions are withdrawn from the employee’s pay after taxes have been deducted. This means that no additional taxes are due on the retirement funds when the employee is able to withdraw from their plans.
Your Contributions as an Employer
Much of the beauty of the 401(k) comes from the fact that the majority of the responsibility of it is in the hands of the employees. Though you as the employer will be the one to offer the plan, and will choose the investments for the employees to have with their 401(k)s, most of the management of this plan will be in the hands of the employee.
You do need to make sure that you are contributing to the plan to the defined amount set by the IRS. The maximum amount you can contribute changes every now and then due to inflation, so it is key that you keep an eye on it. One of the most common practices is to match a certain amount with your employee. For example, some might choose to contribute 50 cents for every dollar
If you decide to opt for a traditional pension rather than a 401(k), you as the employer will be responsible for maintaining this fund. Should you opt for this style of pension, it is vital that you are committed to delivering the correct payments each month so your employee has a good retirement fund building up over the years.
Retirement savings plans are incredibly important, and you need to make sure that you as an employer are able to support them. Getting this structure right is vital for the health of your business, and to ensure that you are able to sustain your employees long after they cease to work for you. This is a key part of running a business that cannot be ignored, so the sooner that you can set things up the better. As an employer, you have the responsibility to offer a safe working environment to your employees. This includes all fiscal responsibility, especially when it comes to something as important as a retirement fund – so make sure you find the right structure for your employees.