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If you saw a $20 bill lying on the sidewalk, would you pick it up? You might think, “what a silly question!” After all, who would ignore free money? Surprisingly, however, thousands of American business owners and their employees turn down the equivalent of thousands in free money each year offered by the federal, state and local government by failing to participate in a tax-deferred retirement plan. |
What the Feds Allow |
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The federal government allows employees to postpone paying taxes on $14,000 of their salaries in 2005 ($15,000 in 2006 and $500 more each year increasing thereafter, indexed for inflation). In addition, an employer match can also be tax-deferred, which means that business owners can pay themselves (and/or their employees) up to $42,000 in 2005 before ever having to pay the tax man. And people over 50 can set aside even more before the IRS sees a penny. |
The Gift that Keeps on Giving |
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In addition to not paying taxes on the money you put into a qualified retirement plan, the money grows, earning investment returns, year-after-year, tax-free. The compounded effect of tax-free investing can add tens of thousands to your account by the time you choose to withdraw the funds. |
Maximum Flexibility |
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Employers can decide if they want to contribute any matching funds to their employees, and if so how much. This match can either be fixed amount (such as 6% per year) or vary depending on company profits. Employers can also decide what requirements employees must have in order to receive their match (such as work 1,000 hours or be employed on a certain date). This gives employers a powerful tool to reduce turnover and reward long-term employees.
Employees also have the flexibility of determining whether they would like to participate or not in the plan and can defer paying taxes on any amount of their salary from $0 to $14,000 each year. |
Plan Costs are Deductible
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Employer costs of setting up a qualified retirement plan are generally tax-deductible. So not only is Uncle Sam pointing you toward free money on the sidewalk, he’s nearly putting it into your pocket. |
Protected Assets |
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Unlike contributions in an IRA or money in your bank account, contributions set aside in a qualified employer-based retirement plan are secured from creditors and may not be seized, even in the event of default or bankruptcy. This protection generally covers assets against all commercial and legal claims with the exception of unpaid alimony and child support. |
Investment Options |
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The best plans give employers the ability to select any investments, especially low cost investment options, such as index funds, from multiple fund families. |
Plans Are Portable |
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If you change your job, the money you set-aside can be “rolled over” into another 401k plan or into an individual retirement account (IRA), without any taxes due. Or you may simply cash out of your plan, paying taxes from the proceeds. |
Which Type of Retirement Plan is Best? |
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The IRS recognizes several different types of retirement plans, such as 401k plans, 403(b) plans, profit sharing plans, defined contribution plans, SEPs and SIMPLEs. All have different rules; some types of plans are more suitable for certain types of businesses. Your retirement plan provider should be able to offer you advice on the best type of plan for your business. In general, 401k plans offer the most flexibility to employers and give participants, both employers and employee, the largest tax benefits. |
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The power of tax deferred savings, contributing $100 per pay period.
(assumes 8% annual return; 28% combined federal & state tax rate)
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The Rules |
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It’s easy to see why 401k plans are the most popular employee retirement plans in America. But they do have rules. Contributions get to grow tax-free until they are withdrawn. If funds are withdrawn before retirement age, employees must pay tax on the amount withdrawn plus a 10% penalty.
If the employer wishes, employees may receive loans from their accounts for any reason and cash distributions from the plan in case of hardship (such as medical emergency or home default).
While employers have broad latitude in setting the rules for their company plans, they are required to file paperwork each year showing that plans do not unfairly benefit certain employees at the expense of others. Employers are also required to make sure that plan costs are reasonable and that plans operate in the best interests of those who participate in them.
Your plan provider typically guides an employer through all plan requirements and prepares all the necessary paperwork on an employer’s behalf. It’s as easy as picking up free money. |
One Phone Call Can Get You Started |
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Call (251) 436-0800 to find out why Employee Fiduciary is the leading choice for small business 401k plans in America. We guarantee the lowest cost, most efficiently run retirement plans in the industry. |
Why Choose Employee Fiduciary?
- We are experienced 401k administrators. Our team has set up and administered more than 2,000 separate 401k plans with combined assets that exceed $5 billion.
- We have no plan size minimum and handle both small business and large company plans.
- Our 401k ratings exceed industry service standards.
- We offer the widest choice of 401k investments: You can choose any funds and any share class from any fund family. This includes low fee 401k index funds and other low fee investments, including 401k ETFs (exchange traded funds).
- Some popular fund families do not offer their mutual funds to plans unless they have a minimum asset level. Vanguard, for example, will not offer their mutual funds directly to businesses unless their retirement plans are worth more than $5 million in assets. Employee Fiduciary, however, can get you any 401k Vanguard Funds, including their popular index funds, at no additional cost.
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What Does Our Full-Service 401k Administration Include?
- Daily recordkeeping
- Access to every fund from every fund family available to 401k plans without any “wrap” fees or surcharges.
- Plan design and consulting
- Plan documents
- Plan testing
- Loan processing
- Participant statements and website account access
- Enrollment materials, fiduciary guidance and a fiduciary handbook
- Live, dedicated service representatives available toll-free
- In sum, everything you need to establish, maintain and monitor your plan.
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Employee Fiduciary Corporation
1 St. Louis Street, Suite 1002
Mobile, AL 36602
info@employeefiduciary.com
(251) 436-0800 (877) 401-5100
local toll free
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