As your company grows, you’ll want to attract and retain the most talented employees. You may find yourself competing with larger businesses for the best and the brightest, and one way to remain competitive is to offer attractive employee benefits packages. One major benefit offering that should be on your list is some type of qualified employer pension plan. One of the most flexible options is the 401(k) plan.
A 401(k) plan can make your employee benefits more competitive with other large and small businesses to help with recruitment and retention of the best employees. You may qualify for a federal tax credit that can help offset some of the plan setup costs, and the flexible plan design lets you customize plan features to meet your needs.
Pre-tax contributions give you and your employees a way to reduce current income taxes while saving for the future. You can choose to help your employees save by making employer contributions to their 401(k) accounts, which provide your business a tax deduction as well. Taxes are paid on the back end when the money is withdrawn.
After-tax contributions to a Roth 401(k) offer the advantage of tax-free investment earnings and tax-free withdrawals in retirement. Making both pre-tax and after-tax Roth contributions allows your employees to choose when they want to pay taxes on their savings – either up front (Roth) or on the back end (pre-tax) or both.
Designating your plan as a safe harbor 401(k) plan lets you avoid the administrative hassle of having to run nondiscrimination testing and possibly limiting the contributions of your higher paid employees, providing you meet certain requirements centered around: