Employee Benefits - DRDA CPA

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A 401(k) retirement account is a plan that rewards long-term retirement savings by employees. These accounts have many advantages, but the primary incentive to invest in the account is tax-based (i.e. the employee is permitted to defer taxes on certain income that is related to the account).

SmartPay will help you select and manage the right retirement plan for your business.

What is a 401 (k)?

Generally, 401(k) plans are known to be a type of retirement savings plan that employers can choose to set up for their employees. Employee 401(k) contributions are automatically deducted from their paycheck each pay period before taxes are taken out. Employees’ contributions are invested, at their choosing, into one or more funds provided in the plan. Employers may choose to match the funds. Employer costs for this plan are tax-deductible and employees’ contributions are tax-deferred.

A 401(k) plan is a simple, affordable way to build a retirement nest egg by making periodic contributions to a retirement savings account with each paycheck. After setting up your 401k, you can:

Easily plan for your golden years with contributions you can afford. Provide your employees with a retirement savings plan where they specify the amount to be deducted from their paychecks and the funds are automatically invested in their 401(k) accounts.

Never spend time administering funds or assisting your employees with their investment options.
Avoid the high costs of pension plans while still providing your employees the retirement savings options they deserve.
Make additional contributions to employees’ 401(k) accounts when you can.
Offering a 401(k) plan ensures your employees have the ability to save for retirements.

Why Should I consider a 401(k) Plan?

Plan Types

Traditional
401(k)

allows employees to save for their retirement through payroll-deducted contributions while providing employers the option to make additional contributions to their employees’ 401(k) accounts. However, due to required annual non-discrimination testing — a process developed to ensure 401(k) plans do not favor owners or highly compensated employees (HCEs) more than other employees — HCEs and business owners may have limits imposed on their annual contribution amounts.

Safe Harbor
401(k)

provides the same features as a Traditional 401(k) plan and bypasses annual non-discrimination testing to help companies that may otherwise encounter difficulty passing. A Safe Harbor plan requires minimum annual employer contributions using either a matching formula or static 3% annual contribution similar to a SIMPLE plan.

Solo
401(k)

affords owner-only and family-only businesses the ability to make the maximum allowable contributions to a retirement plan while providing access to accumulated balances through a loan feature. Business owners and their spouses receive the same advantages of a Traditional 401(k) plan, including pre-tax and Roth contributions, as well as higher annual contribution limits than are allowed in a SEP-IRA or SIMPLE plan.

Employee Contribution

All employees — including owners — The amount individuals can contribute to their 401(k) plans in 2023 will increase to $22,500, Those 50 and older can contribute an additional $7,500 in 2023 for a total of $30,000.. We offer the most popular deferral options so your employees can build their retirement savings easily and practically.

Regular
Deferral

s a pre-tax employee contribution that is deductible in the year it is made so the contributions grow tax-free. The accumulated balance will be taxed upon distribution at the individual’s then-current income tax rates.

Roth
Deferral

is an after-tax employee contribution that is not deductible in the year it is made. Contributions grow tax-free and the accumulated balance will not be taxed upon distribution.

Catch-Up
Contribution

are optional for individuals 50 or older so they may defer up to an additional $7,500 to their 401(k) accounts — up to $30,000 annually including either Regular or Roth Deferrals.

Employer Contribution

You can easily make contributions to your employees’ 401(k) plans with a variety of simple options:

Fixed
Company Match

enables you to match an employee’s contributions at a fixed rate for a simple, predictable way to help them grow their retirement funds. This option is the most popular matching method for small businesses.

Discretionary
Company Match

allows you to match a percentage of each employee’s deferral, giving the freedom to offer, raise or lower the match percentage annually.

Discretionary
Profit Sharing

lets you make one-time or periodic contributions to employees’ 401(k) plans, even if they’re not actively contributing to their own accounts. You can easily make an equal contribution to everyone, or direct the contributions to specific employees. We’ll gladly prepare estimated profit sharing calculations upon your request.

For all 401(k) plans, the maximum contribution for any one person is limited by law to the lesser of $66,000 ($73,500 if 50 or older) or 100% of compensation including both employee and employer contributions

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