retirement

From COVID-19 to the devastating wildfires and the upcoming presidential election, 2020 has been the year of uncertainty. Yet there’s one thing we do know: Now is an ideal time to launch a company sponsored retirement plan.

Currently, more than half of employees say that finances are their biggest concern–more so than all other aspects of their physical, mental, and social well-being. In addition, 42% of employees believe that employers have a responsibility to address their financial wellbeing. If those aren’t reasons enough, keep in mind that there are also benefits for you, the business owner, in offering 401(k) plans to your employees. Here are five of the top reasons why now is the best time to offer a company sponsored retirement plan:

  1. The tax credits are significant: One of the most compelling reasons to start a retirement plan is the tax credits made available to business owners. The SECURE Act provides small businesses that sponsor their first retirement plan with a tax credit of up to $5,000 per year for three years. In addition, any plan that implements automatic enrollment in 2020 or later is eligible for a $500 credit for three years. This applies to both existing and new plans and can be combined with the start-up tax credit for additional savings. This could mean you’re entitled to up to $16,500 in tax credits while simultaneously helping your employees prepare for retirement.
  2. The company tax deductions are substantial: Offering employee 401(k) match contributions are not mandatory (unless you’ve opted into a Safe Harbor Plan), but if offered they entice participants to save faster and more successfully. Matching contributions are tax-deductible and they aren’t subject to Social Security or Medicare taxes.
  3. Business owners can reduce their taxes, too: As of 2020, annual pre-tax contribution limits are $19,500 per year, with an extra $6,500 in catch-up contributions for anyone over 50. This means you can reduce your taxable income by up to $26,000 per year. With certain plan types, like profit sharing, business owners can put aside as much as $57,000 per year before taxes, or up to $63,500 with catch-up contributions.
  4. 401(k)s help attract and retain talent: Competing for top talent can be hard, especially if your employment package is solely based on salary. Offering an employer-sponsored 401(k) shows employees that you care about their future while simultaneously serving as a retention tool. According to Willis Tower Watson, 75% of new hires at a company offering a 401(k) say the retirement plan provides a compelling reason to stay. And offering a generous employer match means more money in the employee’s pockets for their future, sweetening the pot all around.
  5. It’s October: Last but certainly not least, October is National Retirement Security Month, which means the entire month is dedicated to raising awareness about the importance of retirement savings. It’s important to keep in mind that the deadline for starting a new, non-Safe Harbor 401(k) plan for a January 1, 2021 start date is November 15, 2020, and it’s quickly approaching! Starting your plan on January 1 maximizes your tax benefits for the calendar year and starts everyone off on the right foot.

With financial stress at an all-time high, helping to ease your employees’ financial anxiety while supporting their retirement savings and decreasing your own taxes is a win-win-win. Offering a company-sponsored retirement plan is not only surprisingly affordable, but it can benefit the company and its employees for years to come. Trust us – your employees will thank you, and so will your tax returns!

Allison Brecher is General Counsel and Chief Compliance Officer at Vestwell. She has more than 20 years of legal and regulatory experience having handled high profile and complex litigation involving employee benefits, ERISA, regulatory matters, data privacy, and electronic discovery. For more information about Vestwell, please visit www.vestwell.com.

Retirement plan stock photo by ESB Professional/Shutterstock