Offering a 401k benefits package is one of the best ways to ensure that your employees stay happy and cared for. In addition, keeping your benefits packages competitive can offer many advantages for employees and employers.

Offering a Competitive 401k Benefits Package: The Basics

A 401k is an employer-sponsored benefits package that allows employees to deposit income into a fund for withdrawal after retirement. Employers can match some or all of employee contributions to this fund. There are two types: traditional and Roth. Each type has its benefits. 

Roth vs. Traditional: What’s the Difference?

There are several differences between traditional and Roth 401k plans, primarily in how they are taxed. In addition, different plans are better fits for different people, so you must understand the ins and outs of each one.

Traditional 401k

A traditional 401k benefits package is an investment option that does not tax you when funds are placed into the account. By putting a portion of your income into a traditional 401k, you can cut down your average income tax amount since the income placed directly into the 401k will not be taxed immediately. When funds are pulled out, however, that amount is then taxed. Traditional 401ks are best for those who want to collect the benefits of a 401k upfront and allow their contributions to be taxed later.

Roth 401k

A Roth 401k benefits package is an investment option that taxes contributions when placed into the 401k. Investing your income into a Roth 401k does not offer the up-front benefits of a traditional 401k, but the funds, in turn, are not taxed when pulled out of the account so long as you are at least 59.5 years of age when the funds are removed. Roth 401k packages are best for those comfortable with being taxed up front to experience untaxed funds when they are pulled out later. 

If you’re having trouble deciding which plan is right for you and your employees, you may want to consider offering both. Investing in both a Roth and traditional 401k can diversify your tax profile and hedge your bets with the investments. 

Why Should You Offer a 401k Benefits Package?

There are endless reasons to offer 401k benefits packages to your employees and even more reasons to keep them competitive with the rest of the market.

• Decrease employee attrition. Providing them with benefits packages competitive with other employers in the job market is just as important as offering a competitive salary. In addition, employees are much more likely to stay with your company if you invest as much into their future as they do- strongly consider matching most or all of your employees’ contributions to their 401k plans.
• Attract top talent. Offering competitive 401k benefits packages will increase the value of employment at your company relative to others and assist you in attracting the top prospects in the job market to work for you. 
• Contributions are tax-deductible. As an employer, you can deduct your contributions to your employees’ 401k plans from your company’s federal income taxes, up to a maximum limit.
• Your state may require you to. For example, in certain states, businesses of a specific size must contribute to their employees’ retirement plans. Conduct research and see if your business is already required to contribute to these plans under state law.

Other ways to offer your Employees Competitive Benefits

Why stop at a 401k? If you’re an employer looking for ways to provide your employees competitive benefits packages, there are many different avenues.

• Offer comprehensive dental insurance. Everyone needs to take care of their teeth. Offering your employees a comprehensive dental insurance package is a great way to keep your employees happy and healthy, going a long way in keeping your best employees around.
• Account for inflation. You may offer employees a standard annual pay raise or something similar as an employer. Is it keeping up with inflation? If you’re already raising pay annually to keep up with inflation, you may want to reassess your pay rates.
• Consider offering Employee Assistance Programs (EAP). Rising in popularity over recent years, an EAP offers assistance to employees with personal and/or work-related issues affecting their mental health. Offering comprehensive and competitive EAPs will attract employees that are conscious of their mental wellbeing and prioritize taking care of themselves.

Outsource your HR Services With Canal HR

Are you having difficulties deciding which benefits to offer, how much to offer, or how to deal with other employment-related issues? Canal HR is here to help! Canal HR is a professional employer organization (PEO) that has been serving the southeast region of the United States for over three decades. Canal HR offers various services, including payroll administration, risk management, and more. Contact us today to learn more about outsourcing HR services for your organization.