Advantages and Disadvantages of a 401k plan to the Employer and Employee
A 401(k) plan is a retirement account to which employee and employer contribute, on which taxes are deferred until withdrawal, and for which the employee selects the types of investments. As with anything to do with the Internal Revenue Service, the 401(k) plan has many ups and downs and many regulations that must be followed. This makes things more difficult for both the employer and employee in making decisions about the plan. We have taken a look at the advantages and disadvantages of the plan from both sides of the table to show what all is involved in deciding to use a 401(k) plan. We then give a comparison and contrast of two major companies that use this plan as an option to their employees, and weigh the good and bad points of their particular plan. With this information it makes things a little clearer as to whether or not a 401(k) plan is the definite way to go. First, we take a look at the advantages to the employers to see if it is worth it for them to offer this plan to their employees. The low cost of the plan makes it very desirable. No employer contributions are necessary because the plan can be entirely funded with contributions from your employees’ salaries. Companies do not have to offer any vesting options,
One other problem with a 401(k) plan is that the features of the plan can taint the need for employees to provide for their retirement, because under certain conditions, the money can be loaned or distributed in hardship situations. This could give your employees false sense of security and they could blame it on your company when they realize that they are not going to be able to meet retirement needs Many employers’ set up 401(k) plans because they are popular and offering one may help them attract and retain good employees. Many college students today are more familiar with retirement plans and may chose to work for a company based on benefits the company may offer. A 401(k) plan could bring these college students to an employer, so it is very important for employers to think about the effects of a retirement plan such as the 401(k) when considering hiring employees. Most 401(k) plans are designed to help you when you need it most, at retirement of course, but also in case of an emergency. There are two ways you can dip in to your account, that is if your plan allows you to do so loans, and withdrawals. First, loans are basically taking money out and promising to repay it. However, you must pay back what you borrowed plus interest with after-tax income, whereas withdrawals are completely different. When you make a withdrawal from your account you cannot put it back. The most common withdrawal is the hardship withdrawal. To qualify for this type of withdrawal your hardship must represent an immediate financial need. It would be wise, if you can help it, to take out a loan instead of a withdrawal because a lot of times with withdrawals you have to pay income taxes, and a possible 10 % withdrawal penalty.
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Approximate Word count = 3713
Approximate Pages = 15 (250 words per page double spaced)
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