The Pros and Cons of a 401(k)
Did you know that employers can offer a 401(k)-retirement plan to their employees? Those that are self-employed with no employees also have the option to have a solo 401k. Contributions from an employee’s salary or an individual’s self-employment income can be made to these accounts throughout their employment.
The individual can then choose other savings and investment options, such as CDs, which will help accelerate the account’s growth. In this article, we’re going to discuss the pros and cons of a 401(k).
The Pros of a 401(k)
Matching Contribution
Matching contributions are often offered by employers that provide 401(k). These contributions can increase an employee’s 401(k) account’s value tremendously over time. Companies can also match 100% of an employee’s contribution to their 401(k)-retirement plan. For employees, it’s a good idea to save 10% to 15% of their gross monthly income for retirement.
Many retirement plans include an automatic escalation function that increases the contribution percentage at each new year. It could be set to increase the contributions by 1% each year until it reaches 15%. This is a great way to ensure a secure and happy retirement for employees.
Expert Advice
Once an employee has signed up for a workplace retirement program, there are different options to choose from for investment and savings. Employees can get personalized advice to help select suitable investments for their age, financial situation, and risk tolerance.
Loan Options
If an employee runs into an emergency, they can choose to borrow funds from their 401(k).
Federal Protection
The Employee Retirement Income Security Act of 1974 (ERISA), is a federal law that protects qualified workplace retirement plans. The ERISA establishes minimum standards for employers offering 401(k) retirement plans.
The Cons of a 401(k)
Account Fees
Account fees for employees might be high due to the administrative responsibilities that employer-sponsored retirement plans have.
Limited Investment Options
There won’t be many options, only basic asset classes like stock, bonds, and cash. 401(k) plans and other retirement accounts may offer fewer investment options than IRAs or taxable brokerage accounts. A limited investment menu simplifies your investment options and reduces complexity.
Early Withdrawals are Subject to Fees
The downside for employees investing in retirement accounts is a 10% fee for early withdrawals made before the official retirement age, 59 1/2.
Vision HR Retirement Savings plan
No matter how small or big your company is, outsourcing non-core tasks can be a smart business move. Partnering with other companies can help you manage payroll, tax administration, and welfare benefits. These same benefits are now available for retirement savings plans. This allows you to give your employees more investment options and still meet your company’s needs. You get the best of both worlds: more significant benefits and more opportunities. Contact us today to learn how we can assist your Palm Coast company.
