A 401(k) is a powerful tool that can help your business reduce tax liability, save for your future, and help your employees save for theirs.
Tax benefits and affordability
- Pretax contributions. All plan participants (including owners) can contribute pretax dollars, up to $18,000 annually, plus catch-up contributions for those 50 or older, which potentially lowers taxes on earned income.
- Plan flexibility. You can choose to make contributions to employees' 401(k) accounts or not. If you do make contributions, they are tax deductible.
- Plan expense deductions. 401(k) plan expenses are generally tax deductible. If this is your first 401(k) plan, your business may be eligible for an additional annual tax credit of up to $500 per year for three years.
Recruit and retain employees
Studies show that nearly two-thirds of employees consider a retirement plan to be a critical workplace benefit.###DISCLAIMER:2_0 401-K MetLife Study### Attract and keep employees with choices that work for you.
The flexible plan design offers choices that can fit your business:
- Eligibility. You choose when employees can participate (for example, immediately or after one year of employment).
- Vesting. If you choose to contribute to employees' 401(k) plans, you decide on the vesting schedule (how long employees work for you before these funds are considered wholly theirs).
Ease of implementation
Union Bank® is proud to team up with Paychex Retirement Services, a leading 401(k) plan provider with over 74,000 clients. Paychex provides 401(k) administration and recordkeeping services for businesses of all sizes.
Paychex advantages include:
- Simplified setup. Local specialists consult with you on plan design options and guide you through onboarding.
- Employee rollout support. Paychex manages employee enrollment, administration, per-pay-period investing, and much more.
- Flexibility. Tailor your plan with a selection of investment menus or design your own from thousands of investment choices.
- Easy access. Employers and employees alike can manage plan features online, on-the-go with the mobile app, or by phone.
- Ongoing service. U.S.-based service teams assist you with all of your plan needs.
EXAMPLE: TAX AND OTHER BENEFITS CAN OUTWEIGH PLAN COSTS
Plan expenses and contributions generally are tax deductible and the benefits may outweigh the administrative costs.
As an example, let’s take a look at Jim and his business:*
- Jim’s business has three employees.
- Jim contributes $18K to his 401(k) each year and is in the 30% tax bracket.
- His employees contribute $30K per year and Jim makes a matching contribution of $10K.
- His company is in the 25% tax bracket and employees are in the 20% tax bracket.
- Plan expenses are $1,800 per year.
- It’s a new plan, so his business receives a $500 tax credit annually.
(30% tax bracket)
|Annual Pretax 401(k) Contribution||$18,000||$5,400|
(25% tax bracket)
|Tax Deductions and Credits|
|Plan Administration costs
New 401(k) Tax Credit
Annual: first 3 years
|Tax Benefit to Jim's Business||$3,450|
(20% tax bracket)
|Annual Pretax 401(k) Contribution||$30,000||$6,000|
|Total Savings to Jim, His Business, and His Employees||$14,850|
With Jim’s plan administration costs of $150/month, the tax opportunities far exceed the administrative costs. Employees may also be eligible for up to a 50% tax credit on their contribution.
* This hypothetical example is for illustrative purposes only. Consult your tax advisor regarding your specific situation. Actual plan costs, tax rates, deferrals, and limits may vary.
For more information, contact a local branch to speak with your banker today.