Qualified Plans─The Bedrock of Retirement Savings
Voluntary, employer-sponsored retirement plans are the bedrock of our nation’s retirement system. More than 50 million Americans participate in more than 500,000 plans with more than $4 trillion in assets, cites the Investment Company Institute.
Most employers that provide defined-contribution plans offer a 401(k), or a 403(b) for nonprofits, as an employee benefit perquisite. Employees contribute a percentage of compensation each year and employers can either match or contribute a portion to plan. Unlike other kinds of retirement plans, a 401(k) allows the employee the ability to withdraw funds before retirement, though early withdrawals are subject to certain requirements.
Benefits to the Employer
- Reduces costs through tax credits and other incentives
- Attracts and retain better employees
- Grows plan assets tax-free
- Accepts tax deductions for employer contributions
Benefits to Employee
- Earns compound interest over time with potential for significant retirement savings
- Improves financial security in retirement
- Simplifies contribution through payroll deductions; plan moves between employers
- Reduces current taxable income
- Defers taxes on contributions and investment gains until distributed
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