Automotive Specialty Insurance

401K And Individual Retirement

Developing a savings plan for your business while building a valued employee benefits plan to attract and retain top talent is a strong motivational factor in looking into an investment strategy. The saying, "Saving for a rainy day", has never been more applicable as the nation faced unprecedented economical challenges and building a 401k program for your business can strategically position your organization to thrive in difficult times.

A 401(k) is a type of retirement savings account common throughout the United Sates which takes its name from subsection 401(k) of the Internal Revenue Code. 401(k)s were first widely adopted as retirement plans for American workers, beginning in the 1980s. The 401(k) emerged as an alternative to the traditional retirement pension, which was paid by employers. In 2011, about 60% of American households nearing retirement age have 401(k)-type accounts.

As an employer, you can help your employees save for retirement while reducing taxable income under this provision, and workers can choose to deposit part of their earnings into a 401(k) account and not pay income tax on it until the money is later withdrawn in retirement. A contributor can begin to withdraw funds after reaching the age of 59 1/2 years. Interest earned on money in a 401(k) account is never taxed before funds are withdrawn. Employers may choose to, and often do, match contributions that workers make. The 401(k) account is typically administered by the employer, while in the usual "participant-directed" plan, the employee may select from different kinds of investment options. Employees choose where their savings will be invested, usually, between a selection of mutual funds that emphasize stocks, bonds, money market investments, or some mix of the above. In some circumstances companies' 401(k) plans also offer the option to purchase the company's stock if made available. The employee can generally re-allocate money among these investment choices at any time. In the less common trustee-directed 401(k) plans, the employer appoints trustees who decide how the plan's assets will be invested.

Since 2006, another type of 401(k) plan has been available. Participants in 401(k) plans that have the proper amendments can allocate some or all of their contributions to a separately-designated Roth account, commonly known as a Roth 401(k). These "Roth" contributions will be collected and treated as after-tax dollars; that is, income tax is paid or withheld in the year contributed. Qualified distributions from a designated Roth 401(k) account, including all income, are tax-free. (A traditional 401(k) account is funded with pre-tax dollars and, in general, tax must be paid when the original contribution and earnings are withdrawn.) All employer matching funds are deposited into the account on a pretax basis, even if the employee's contributions are all Roth contributions. Employer contributions may be subject to vesting rules set by the plan documents requiring the employee to reach a certain number of years of service before they are entitled to keep the matching funds.

If your company is considering designing an investment plan for individual executive members or a group plan for all employees, the SEIA team looks forward to being of service and offers a wide range of deferred compensation investment strategies to SEMA members nationwide.

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