You’ve heard about the baby boom, but what about the 401(k) boom? From a single plan created in 1980, today there are more than 600,000 401(k) plans and similar types of defined contribution plans in the United States. With such growth and popularity, every business should consider implementing some form of defined contribution plan. This is extremely important for businesses with a high percentage of millennials on staff as this generation has the most to gain from their 401(k) accounts.
What Are Defined Contribution Plans?
A defined contribution plan is a type of employer-sponsored retirement plan in which the amount the employer contributes is defined, but the amount of benefit the employee receives at retirement is not.
The most popular type of defined contribution plan by far is the 401(k) plan, for large and small companies alike. The amount that business owners and employees can contribute to a 401(k) plan on a pre-tax basis each year is higher than many other types of individual retirement accounts. This is a great advantage for millennials as they have the option to start investing early. Annual contribution limits for 401(k)s and similar plans adjust over time and currently range up to $24,000 per year.
Profit Sharing Plans
Another defined contribution plan that allows employers a way to increase contribution limits is a profit-sharing plan. With these plans, employers can add a portion of the company’s prior-year profits to employee retirement savings plans. These employer contributions help boost pre-tax savings for all employees and are tax deductible for the business.
Is it boom time for you? Reach out to your trusted professional advisors and explore implementing a 401(k) plan today! I95