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5 Reasons To Switch From A Simple IRA to a 401(k) Today

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Download 5 Reasons to Switch from a Simple IRA to a 401(k) Today

5 Reasons To Switch From A Simple IRA to a 401(k) Today

Parker Elmore, ASA, MAAA, EA, FCA | Sarah F. Rothenberg

Simple IRAs are a great tool for small businesses to provide retirement benefits for themselves and their employees, with few complexities. However by opting for a simplified retirement plan, employers forgo flexibility and may end up leaving money on the table. There is often the misconception that a 401(k) plan is unaffordable for a small business. However, businesses will often find that a small increase in administrative fees is more than offset by the benefits, and consequential savings, that a 401(k) can provide.

Benefits of Switching to a 401(k)

  1. Recruit and Maintain Talent
    a. Remain competitive with large employers
    b. Vary benefits to reward valued employees including yourself
    Vesting period may increase employee retention
    May offer additional benefits after a specified vesting period
  2. More Investment Opportunities
    a. Many investment providers
    b. Investment providers educate employees on their options
    c. Lower cost options available
    d. Allows for Roth 401(k) deferrals
    e. May offer loans from accounts
  3. Maintain Other Plans (if you wish)
    a. Allows greater flexibility in benefit allocation
    b. May be used to maximize tax deferred income
  4. Save More for Retirement
    a. Higher contribution limits ($18,000 v. $12,500 asof 2016/2017)
    b. Allows for larger catch up contributions (additional $6,000 if over 50 compared to $3,000)
  5. Maximize Tax Savings
     a. New 401(k) plans may be eligible for a federal tax credit up to $500 per year for the first three years
    b. Employer contributions (up to $54,000 per employee as of 2017) are tax deductible

401(k) plans may not be the right choice for every employer. So consider your goals and consult a professional. However, if you are looking to maximize your tax savings and save more for retirement, then a 401(k) may be for you.

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