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What Benefit Does a 401k Plan Provide Over an IRA

Now is as good a time as ever to think about retirement, and you may be wondering: “What benefit does a 401k plan provide over an IRA?” Although Roth IRAs are becoming more popular, traditional 401k plans have been the leading choice for employers since 1978. Larger companies shouldn’t be the only ones able to invest in employees’ retirement. While offering and administering a 401k plan may seem intimidating, you don’t have to do it alone. With Canal HR as your 401k plan provider, offer competitive retirement benefits without the heavy lifting. 

Traditional 401(k) vs. Roth IRA

There are two basic types of 401ks–traditional and Roth. Let’s look at their similarities, differences, and other factors to help you select the best retirement plan for you and your employees. 

A 401k is a retirement savings account that can be company-sponsored. Employees sign up for 401k to have a percentage of each paycheck paid directly into an investment account. Employers will either match a percentage of employee contributions or choose to match employee contributions up to a certain dollar amount. 

Tax-Free Contribution and Taxed Withdrawals

Your 401k plan contributions are made before you pay your taxes (pre-tax contributions). These contributions lower the income that is leftover (taxable income), meaning that you are able to reduce the amount of taxes you pay immediately. Your contributions will stay untaxed until you withdraw money. 

Taxed Contribution, Tax-Free Withdrawals

Contributions to your Roth 401k are made after you pay your taxes. Although you’ll have to take on more tax pain upfront, your contributions will stay untaxed even when you withdraw money from your Roth 401k. Compared to the traditional 401k plan, the Roth reduces your immediate spending power. Thus, this plan may be unwise for employees with tighter budgets. 

What Does a 401k Plan Offer?

Utilizing an attractive and affordable 401k plan is an excellent way to take care of your employees, and ultimately, your small business. At Canal HR, we utilize Fidelity NetBenefits as custodian and plan participant to offer you added security and administration of your company’s assets. 

With Canal HR, spend less time worrying about filing a Form 5500 and more time focusing on making your business thrive. Canal HR will handle plan administration for you, including compliance testing, recordkeeping, and reporting. 

Plan highlights include:

  • Employee Contributions can be standard, pre-tax, or Roth contributions
  • Over 20 non-affiliated mutual fund options–no load or load waived
  • Participant access via Internet and Interactive Voice Response system
  • Participant loan provision
  • Quarterly statements
  • Additional catch-up contribution provision provided
  • Employer contribution (optional)
  • Professional customer service Representatives available

Some business owners may think that offering a 401k retirement plan has to be expensive, but Canal HR can help you find the best option for your employees. We can help you design and build the retirement plan that works best for your business, helping you to give your team the care they deserve while setting you apart from competitors.

When is a Traditional 401k Better Than a Roth 401k?

The main benefit of a 401k plan is that you can reduce your tax burden while saving for retirement. Your gains from your contributions are tax-free and hassle-free because they are subtracted from your paycheck. In addition, as an employer, you can deduct contributions on your company’s federal income tax return unless contributions exceed certain limits. 

When you choose a traditional 401k plan over a Roth 401k, you save yourself from an immediate financial dent. Choosing between the two methods depends on when you want to pay income taxes.

If you expect to be in a lower tax bracket after retirement, a traditional 401k plan may be for you. This way, employees can take advantage of the immediate tax break while saving themselves from a more heavily taxed future.

On the other hand, employees just starting off in their career might instead benefit from contributing to a Roth 401k. With a low salary and tax rate, a taxed contribution would make less of an immediate dent while offering tax-free withdrawals later down the line.

Offer Your Employees the Best Retirement Plan With Canal HR

Give your employees the chance to save for their future after retirement by hiring a 401k plan provider. Providing your employees with a high-quality 401k plan is one of the best things you can do for your high-quality employees. 

Canal HR is an accredited 401k plan provider that is with you every step of the way while you improve your employee benefits. With our reliable and experienced HR professionals, you can ensure that each and every detail of your company’s 401k plan is fulfilled.

Have questions? Feel free to send us an email to speak with Canal HR’s internal 401k administrator. Schedule a free consultation today to speak to one of our experts about how you can improve your employee benefits package.