Retirement Plans for Your Company
- Employer-sponsored plans refer to employee benefits that are offered by an organization.
- These plans are often tax-advantaged for employees.
- Sponsorship does not mean that an employer contributes funds to the plans, although they may match certain employee contributions.
- Employers install these benefit plans in order to attract and retain workers as well as receiving tax breaks and other incentives.
Tax Advantages of Employer-Sponsored Plans
Contributes to a 401(k) plan, is done using "pre-tax" dollars. Pre-tax means that money flows directly from the paycheck into the plan before the deduction of taxes. As a result, less of your income ends up getting taxed. Assessment of tax is at the point when funds are removed from the account, usually at a lower rate.
With a Roth 401(k), you contribute money to the plan on an "after-tax" basis. After-Tax means that cash flows from your check into the plan after tax deductions. The trade-off is that qualified withdrawals later down the road are tax-free. A Roth 401(k) plan is a particularly useful tool if you end up in a lower tax bracket upon retirement.