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401(k)

Explaining the Uses of a Multi-Employer 401k Plan

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401k plans are crucial to any employee who wishes to comfortably retire with a decent amount of money. Currently, however, many small businesses are not able provide their employees with these plans, as they are too expensive. Small businesses are currently unable to pool their purchasing power together with other small businesses in order to provide a 401k plan, however, there is legislation in the 113th congress that is considering to allow the businesses to do so. If they pass this law, small businesses will be able to transfer their fiduciary responsibility to an independent fiduciary. This will allow small business owners to offer the same benefits that medium and large companies which contain over 100 employees has to offer.

Multi-Employer 401k Plan

Why are Multi-Employer 401k Plans Necessary?

If an employee is wishing to save up for a retirement plan, multi-employer 401ks are probably the most efficient way in doing so. There are two main advantages that comes with these types of plans. The first being that all earnings and contributions to the 401k plan are deferred from all taxes until the employee makes a withdrawal at retirement age, which is generally around 60 years old. The second advantage is that many employers provide contributions that match the amount of money deposited in the multi-employer 401k. This is sort of like the added bonus of working for a reputable company. However, it is important to keep in mind that this is not always provided in the 401k plan and is simply an added benefit that some employers might wish to offer.

Can a Multi-Employer 401k Change One’s Retirement Landscape?

Many people wish to retire by the age of 65, but a common reality for most employees is that they may not necessarily be able to afford to retire. However, the retirement of many individuals could be impacted greatly by offering multi-employer 401k plans. For example, an employee that is in their 20’s who invests in a 401k from the moment he/she starts working with the benefits of the contributions on a pre-tax basis, such as elective deferrals, will notice a large amount of returns over the course of his or her employment history. This is very important while planning for one’s retirement, as it will give a certain amount of cushion for their life as a retiree.

Is the Fact that Small Businesses Cannot Offer 401k Plans a Problem?

This could be more of a problem for the employers rather than their employees. This is due to the fact that the thought of a multi-employer 401k plan will usually tend to attract many talented and hardworking employees, rather than those who simply try to work to get by. Additionally, multi-employer 401k plans will often keep these valuable employees interested in working for the company, is it offers a viable means of preparing for their retirement with the least amount of taxes possible. Finally, business owners who offer 401k plans will be able to use it as a tax write off at the end of every tax term. So it is not necessarily a problem, however, there are several benefits that will come along with this form of retirement plan.

Will this Plan for Small Businesses actually be Passed, and if so, When?

You have to take it into consideration that this mandate is left up to the United States Congress, so it is very difficult to say if it will actually be passed and when. Although it is in legislation, there is the possibility that it will be overlooked and will not pass legislation, or, it could take many months to even years for them to do so.

Independent Fiduciary for these Multi-Employer 401k Plans…

The majority of large banks and investment financing firms will be more than happy to help out with the responsibilities that come with being a fiduciary for these multi-employer 401k holders and small business owners. A vital part in their participation will be to offer cost effective services to small businesses in hopes to gain trust. They will have to effectively handle the money within the plans and responsibly invest it back into their savings in order to produce the most effective 401k plan as possible.

Challenges Faced by Independent Fiduciaries.

There are many challenges that will be faced by these “independent fiduciaries” while dealing with a multi-employer 401k plan. They will need to educate the employers, as well as, the employees on the advantages and even the risks that will be faced while entering the market. In 2008, there was a financial meltdown in the market. This left many potential investors nervous to enter to market which is understandable. There are, however, many advantages in preparing and contributing to a multi-employer 401k plans that should not go overlooked. This is only one of the challenges that will be faced by an independent fiduciary.
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Is a 401(k) Or A Roth IRA a Better Investment?

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Many young people do not consider retirement but they should when they consider a job or employment. Businesses, corporations and companies offer away to invest through 401(k) Or A Roth IRA as way for employees to save for retirement. An emergency fund or savings is necessary later in life simply because as we age we have many medical issues that may be addressed. Medical bills can accumulate and no way to pay them. You might need to dip into your retirement fund or use credit to pay it off which realistically is not a good alternative because in the future the money saved in retirement is what you will need to live on comfortably. So you may want to check on information about the company you work for to see what is offered.

401(k) Or Roth IRA

Does the company offer a 401(k) Or a Roth IRA?

When a company offers a 401(k) plan they will match a percentage equal to that of an employee. This provides you; the employee’s contribution is done through a salary reduction in many cases on a pre-tax base however some do a post-tax contribution. There are few major 500 companies that still offer their employees a profit sharing option especially if the company has improved their quarterly production within a given year. The plan may also offer the employee away to invest their monetary funds by using selective investment products or allow them to by secured stocks in the company.

  • Employee contribution of a 401(k) plan is based on a rate of fifty cents for every dollar contributed or equal to a guaranteed portion of your salary.
  • If you have the choice where you are employed it is best to choose a 401(k) when it is available. Of course it also depends on personal tax situation and the goal you want to achieve for your retirement.

Having a 401(k) Or A Roth IRA can benefit a person’s retirement but when a company does not offer a 401 (k) a Roth IRA is beneficial for a way to plan for retirement. Since the law has changed the age of retirement and the end of the “Baby Boomers” are beginning the age of 50 it makes sense to invest money into a Roth IRA. However a Roth IRA, Traditional IRA or both to have the contribution for the year which cannot exceed the lesser of $5,500 or 100% of earned income cumulative of both types of IRA’s. In 2014 if you are 50 years old or older the amount has to be $6,500.00. The government has placed laws to stipulate and the interest that IRA’s can accumulate over a period of time.

  • The benefits of having the Roth IRA compared to the Traditional IRA are that the Roth IRA contribution may be withdrawn at anytime without an income tax or a penalty tax of 10 %.
  • Another benefit with having a Roth IRA is that the conversion amounts may be taken out without having an income tax or after five years a 10% penalty tax to pay.
  • Meeting the eligibility requirements of having a Roth IRA and being able to deduct contributions from the federal taxable income and can reduce the taxes you may owe.

Of course with a Traditional IRA the money accumulates is tax deferred but eventually you will pay taxes on it but only when you withdrawal the money before you reach the age of 70. You can also start by taking minimum distributions each year after your 70th birthday.

It is important that many of us have invested through contributions to 401(k) or Roth IRAs each year. The idea of saving money for the future is up to what fits our financial needs but at any giving time can change. When we decide to save for our retirement the IRA belongs to us and we have the flexibility to use it with discretion. Whether it is for a serious illness that has acquired large medical bills, having children in college or having you return to college for a Master Degree.

Companies that do not offer 401(k) plans give employees the only option of having Traditional IRA, Roth IRA’s, certificates, mutual funds, bonds and company stock. If you have to make a choice do some research on your own at a number of stock websites to see what the current interest rate is at and the projection. Remember you are trying to invest your hard working money you earned into something that will give you growth as you get toward the retirement age. Since, we would all like to enjoy a comfortable retirement in the future finding the best way to save is always in a person’s best interest.  Especially if you think that income tax rate is going to be considerably lower at retirement it makes sense to defer paying taxes now when you can. So investing in a Roth IRA for the future is an alternative with so many companies getting rid of the 401(K) offers.