Group 401(k) Retirement Plans

Employee Benefit Retirement Plans

A 401k retirement plan is one of the most common plans. It is only available in the United States but is considered to be a global benchmark when it comes to retirement planning. A 401k plan is offered by many American employers as a retirement savings plan.

There are some obvious advantages to offering your employees a group 401(k) plan. For one, it helps your business to attract and retain the best available workers, as well as provides potential tax breaks for your business.

Employee benefits are quickly becoming the fine line that separates every other job opportunity from the most desirable positions and employers have started to take notice. This change is especially evident among small businesses; 67% of them offered a 401(k) plan to employees in 2021.

What is a 401k Plan?

A 401 k retirement plan is sponsored by an employer that enables employees to make their contributions. These contributions are then deducted from their salary. The employer also matches the contribution of the employee to the plan up to a certain limit. However, only the employee’s contribution to the plan is tax-free. The employer’s contribution is taken to be pre-tax.

If you agree to the plan, a percentage of your paycheck is paid directly into your investment account every month. Since the contributions you make to these plans are tax-deferred, your investment earnings are taxed like ordinary income when you withdraw them.

However, you can only withdraw from your 401k account after you are over 59.5 years old. If you withdraw the money before time, a penalty of 10% will be levied on the amount you withdraw along with regular income taxes. Consult your financial professional advisor for legal or tax advice related to your investment objectives.

How does a 401k Plan Work?

Like we said, the 401k plan had been designed by the United States Congress for encouraging the people of the country to save for their retirement.

One of the primary benefits of this plan is tax savings and having a secure financial future. Based on the details of the plan, the money you are investing can be tax-free. According to the experts, you should contribute a maximum amount every year or as much as you can manage.

Under a qualified 401(k) plan, employees can contribute several times more than they can through an IRA due to the yearly contribution caps. With a group 401 (k) plan, employees may contribute up to $20,500 in pretax earnings to be invested, as compared with only $6,000 through an IRA. If you decide to offer an employer match or contribution, that limit goes even higher, creating more investment opportunities for your workers.

Benefits of 401k Plan for Employees and Employers

A 401k plan is usually a win-win for employees and employers. It can help employers to retain talent and lower their taxes, while it will help employees fulfill their retirement goals.

Benefits Enjoyed by Employers

No matter whether you are a small company or a big company, you can take advantage of 401k plan to save taxes.

Stay Competitive for the Top Talent

The pursuit to hire a good and talented employee usually comes down to what you can offer as benefits and cash compensation. With such competition in the industry, it can be extremely difficult to hire the best talent for your company. By providing this retirement plan to your employees, you can help your business stand out when any candidate is weighing the other offers at hand.

Employee Retention

By offering retirement plans, employers can engage employees and reduce turnover. If you are making an investment in your future through retirement plans might be less likely to choose other companies over yourself. When an employee makes matching contributions or offers additional value it adds to the total compensation of the employee. So, by providing this plan, you can increase employee retention and not lose your best workmen.

Catering to the State Mandates

Some states have their own retirement savings program that requires their employers of specific sizes to enroll in a retirement program through the state or have a qualified plan of their own. You can tap into it to cater to the requirements of the state. It will also help in bridging the gap towards the non-working years of the employees who don’t have a retirement plan.

Benefits Enjoyed by Employees

Saving for retirement is one of the most important things you should do when you are working. You might stop earning but your living expenses won’t stop. With a 401k plan, you will be able to enjoy the following benefits.

Easy Payroll Deduction

A study by AARP suggests that the people of the US are 15 times more likely to save for their retirement when they have access to payroll deductions. This shouldn’t come as a surprise considering the convenience you get to enjoy with the payroll deduction. Your contribution to the plan will be deducted automatically based on your paycheck.

Income Taxes Advantaged Savings

A 401k plan permits both after-tax and pre-tax benefits to investors. Every kind of funds contribution has different tax advantages and support options.

  • Pre-tax Contribution: It includes the safe harbor, salary deferrals, profit sharing, and matching company contributions. All these contributions you invest aren’t taxed when made. Rather their amount, plus your earnings are tax-deferred until being distributed.
  • After-Tax Contributions: Include both voluntary and Roth deferrals. These are the contributions that are taxed when made but taxed when distributed. All your earnings on Roth deferrals are distributed tax-free if certain percentage conditions are made.

Financial Safeguards

Every 401k plan needs to comply with the Employee Retirement Income Security Act. Thus, employers have the fiduciary responsibility of creating a company plan based on the best interest of the employee.

Plan administrators or trust services cannot push investment decisions, which maximizes profits. Rather, they have to ensure workers have access to fixed funds with a target date and reasonable fee. They should also disclose information, like historical funds or administrative expenses in the best interest of an employee to make informed decisions when it comes to investments. 401 k helps to have assets needed after you retire or for your child’s higher education.

Loans and Early Withdrawals

Usually, withdrawing money from your 401 k account before the age of 59.5 leads to a 10% tax penalty. But this is one of the retirement plans where the plan participants can enjoy the provision of transforming them into a safety net if they are going through a difficult financial time.

It is better to have access to emergency savings or other cash assets outside your retirement plan. But if they aren’t available once you retire, the best way to go about it is to get a 401 k retirement option.

Usually, loans are restricted at 50% of the vested accounts balance, up to $50,000 of the total. You can pay back your loan payments to the bank with easy payroll deductions from the company. But if you leave your job, know that your outstanding old plan balance has to be paid back by the following tax filing deadline. If you don’t, the loan might become taxable and will be subjected to a penalty of 10%. To avoid penalties, investors should consult a financial professional to know the important information and rules of the federal government agency.

Key Challenges of 401k Plan

Here are some of the key challenges that a 401k retirement plan needs to overcome.

Dollar-Cost Averaging

A 401k plan requires periodic contributions to the retirement account with every mismatch between the tenure of short term of your fund. This is the reason, without dollar-cost averaging, funneling money periodically from the payment to the investment options might not make sense. Your investment options might be overvalued when you are making contributions.

But the good thing is you can have complete control over the investment accounts as you can direct all your contributions to a conservative investing option, which is offered in the retirement plan. If the time is right, you can allocate your investment strategy to one or more conservative funds offered by companies.

Longer Investment Time

You might have been told that your employer is providing a 401 k option to you to ensure long-term accounts savings. This might cause you to believe that you should create a long-term strategic asset allocation depending on the target date of more than a decade.

However, exception applies if your portfolio manager will not manage your investment 10 years from now. Thus, investments with a long-term life focus can eliminate the mismatch between the shorter-term tenure of your fund manager and the long-term investment period.

Usually, mutual funds don’t outperform their benchmark or index. So, it is better if investors put their money in an index fund. Even a 1% saving will help in grabbing thousands of additional dollars support.

In case your 401k plan doesn’t have index funds, your present fund managers will manage your account in the future.


A good 401 k plan is a costly employee benefit. 401 k plans might have many compliance support problems that have to be monitored. What’s more, a number of communication and education services have to be offered to plan participants.

Considering the account mandates, it is likely that you will be paying money through

  • Supplement asset-based bank charges
  • Participant managing fees
  • Higher fund expenses by financial institution
  • Itemized costs for managed services, such as hardship withdrawals, loans, and qualified domestic relation orders

Usually, the business costs are more for small-scale employers which leads to high-value expenses.

But you can eliminate the high account cost simply by creating a customized retirement strategy. Firstly, invest in the 401 k retirement plans up to the extent where you can get 100% of the matching contribution of the employer.

Thereafter, you have to open a Roth IRA or a conventional IRA and contribute as much as you are legally allowed as per your age. The investment choices that will be available to you through IRA are going to be less expensive and much greater than the investment options, which are available to you through the 401k plan sponsored by the employer.

When you exceed the cash money you are allowed to contribute to an IRA, you need to increase the employees contribute rate in the 401k plan to enjoy optimum savings. You can also take 401 k legal or tax advice from your financial professional so that you don’t lose your investment value.

How can Taylor Benefits Help?

One of the benefits of a group 401(k) plan is that you have tremendous flexibility over the details of the plan. You can choose a plan that offers a lot of choices or go with something more simple and straightforward if you want to minimize business administrative costs and time. The advantage of partnering with an independent agent like Taylor Benefits is that we can cater to the specific needs of your business and the savings goals of your employees.

No matter what is the size of the company, 401 k retirement plans as a part of a benefits package can be a win-win for you, as well as your employee. Evaluate the current benefits and update the company offerings.

Curious how we can help? Call us today at the number at the top of the page to learn more about offering a group 401(k) plan! To get started with a FREE proposal right away, use our online request form at the top right!

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