How to Educate Clients About the Benefits of 401(k) Plans

Saving for retirement is an important lifelong financial process. Retirement plans like 401(k)s and 403(b)s help workers achieve financial freedom in retirement.

As an accounting professional, you help your clients better understand and optimize their financial outlook. Educating your clients about the benefits of 401(k) retirement plans not only helps your clients' businesses but also the lives of their employees.

43% of people say they do not expect to be financially ready for retirement when the time comes and 57 million working Americans currently do not have access to retirement benefits at all.

What is a 401(k)?

A 401(k) is an investment account that allows employees to contribute a percentage of their salary to be saved for retirement. This money is invested in the market in the form of mutual funds, stocks, bonds, money market funds, savings accounts, and other investment options. It’s subject to investment risk, meaning it can gain or lose value based on the performance of one’s underlying investment choice(s). 

401(k) contributions can be made pre- or post-tax. Pre-tax contributions (like those made with a traditional 401(k) account) will reduce the employee’s tax liability for the tax year the contribution is being made. Post-tax contributions are made to Roth 401(k) accounts.

Additionally, employers can offer contribution matches to their employee’s plans helping them save even more. 

Tax advantages of 401(k)

One of the many benefits of a 401(k) is the meaningful tax advantage. As mentioned above, contributions to a 401(k) plan can be made pre-tax, meaning that they are deducted from an employee’s taxable income. This can result in a notable reduction in an employee’s tax liability. 

With a traditional (pre-tax) account, employees are able to defer taxes on investment gains—any money earned through investments within the plan is not subject to taxes until it is withdrawn.4 This helps provide significant opportunity for growth as the investments compound over time within the account.

Tax benefits aren’t just for the account owner. There are tax benefits for employers offering retirement plans like a 401(k). Through legislation like the SECURE Act 2.0, employers may be able to receive tax credits for launching a new 401(k) plan. 

Using the Human Interest Plan Cost Calculator, businesses can see how the SECURE Act 2.0 tax credits can impact the cost of launching a new 401(k) plan.

Additionally, employer contributions to employees’ retirement accounts are tax deductible, which can help reduce a company’s tax liability for the tax year.5 

Beyond taxes: why should businesses be offering retirement benefits?

The benefits of offering a 401(k) go far beyond tax incentives. Retirement options are a powerful tool in employee recruitment and retention.

Human Interest found that a retirement plan is the most wanted benefit after health insurance.⁶

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.

Why 401(k)?

Retirement plans like a 401(k) are beneficial to both employees and the businesses who offer them. As the job market becomes more competitive, benefits like a 401(k) can help employers stand out from the competition and keep current employees engaged.

With current tax credits offered through the SECURE Act 2.0, many small businesses can begin offering this important benefit at little to no cost for the first three years.7

Human Interest offers modern, affordable 401(K) and 403(b) plan options with end-to-end administration, zero transaction fees, transparent pricing, and integrations with 400+ payroll providers that process contributions automatically.

Interested in learning more about Human Interest and how we partner with accounting professionals? Learn more here.