How to Answer Your Clients' Common 401(k) Questions

As a new year starts, many businesses take a look at their current practices and benefits looking for places to make adjustments or additions. 

The new year is a great time to start offering retirement benefits. 

Not only do retirement plans help with employee retention and recruitment, but they also provide tax-saving opportunities to the businesses that offer them.   

Read on for insights on some commonly asked questions your clients may have when you discuss retirement benefits and tax saving opportunities. 

What are the benefits of offering retirement benefits? 

Employer-sponsored retirement plans are a very powerful tool in employee recruitment and retention.  

A 2022 study found that a retirement plan is the most sought-after health insurance.

With the competitiveness of today’s job market, having access to a retirement plan may factor into a job seeker’s decision to accept a role or their decision to stay in a current role.  

What tax breaks can we qualify for? 

Businesses that offer retirement plans for their employees can qualify for several different tax credits.   

The SECURE Act 2.0 doubled existing tax credits for small businesses with up to 50 employees and can now receive a tax credit of up to 100% of plan start-up costs, capped annually at $5,000 per employer for each of the first three years. Eligible businesses with 51 to 100 employees are still subject to original SECURE Act tax credits equal to 50% of administrative costs, capped annually at $5,000 per employer for three years.

Additionally, employer contributions to employees’ retirement accounts are tax deductible, which can help reduce a company’s tax liability for the tax year.

Tools such as a Plan Cost Calculator can help businesses can see how the available tax credits can impact the cost of launching a new 401(k) plan.  

I already offer a SIMPLE IRA; why should I offer 401(k)? 

The differences between 401(k) and SIMPLE IRA include things like contribution limits, loans/withdrawals allowed, employer contributions, vesting schedules, nondiscrimination testing, and more.  

Depending on the individual business, one or both plan types may be a good fit. Choosing the right plan will depend on company size, goals, employee and employer preferences, desired flexibility, and more. You can learn more about the differences between the two here.  

What are the contribution limits from the IRS? 

The IRS announced updated contribution limits for 401(k) plans beginning in 2024. The limit on total employee-plus-employer contributions to defined contribution plans will increase to $69,000 (up from $66,000 in 2023). The individual elective contribution limit has increased to $23,000 (up from $22,500 in 2023) and catch-up contributions for those over age 50 remain at $7,500.

Where can I learn more about retirement benefits for my employees? 

As a trusted accounting partner, your clients rely on your expertise in a wide range of areas, from bookkeeping to tax filing and more. Consistently, you deliver top-tier service, staying abreast of legislative changes, technological advancements, and industry shifts.

However, there may be occasions when you encounter topics outside your expertise. To ensure your clients receive accurate information in such instances, it's beneficial to collaborate with a qualified retirement specialist. These specialists work alongside accounting professionals nationwide, offering education and retirement services tailored to your clients' needs. Human Interest Inc. is an affordable, full-service 401(k) and 403(b) provider that seeks to make it easy for small and medium-sized businesses to assist their employees with investing for retirement. For more information, please visit humaninterest.com.