As 2021 has begun and we see the promise that COVID-19 vaccines offer us for more normal lives and a better economy, building up our savings is once again a high priority. If your business is on solid ground, now is the time to offer yourself and your employees one of the most powerful, if not the most powerful, way to save tax deferred. That of course is a 401(k) plan. Any size business can offer a 401(k) plan, be it you're a self-employed, one-person shop or a business of a few or many employees.
So here are seven compelling reasons to take action and start a 401(k) plan in 2021 and check "starting a 401(k)" off your New Year’s resolution to do list:
- You can protect up to $58,000 a year in a 401(k) plan tax-deferred ($64,500 if over 50) -- that’s a lot of mullah. This amount is inclusive of personal contributions and employer contributions as applicable.
- You can personally contribute up to $19,500 ($26,000 if over 50) tax-deferred to lower this year’s taxes, or choose to contribute after-tax in a Roth 401(k) without any limits based on your income (unlike a Roth IRA). Roth savings are tax-free upon reaching retirement age, earnings and all.
- Contributing to your personal 401(k) account over a career may just make you a multi-millionaire, so you can take great care of loved ones, pursue other dreams and live well in retirement.
- The price for 401(k) plans are affordable for any size company thanks to providers that use online technologies and index funds to take the cost out of retirement plans.
- The business and personal tax benefits of 401(k)s can outweigh the actual administrative costs of offering a retirement benefits for your business. Businesses with 1-100 employees starting their first 401(k) plan can qualify for up to $5,000 in tax credits each year for the first three years of the plan.
- If you need access to your money in an emergency, a 401(k) plan offers a loan option that allows for up to $50,000 to be loaned out to yourself from your vested 401(k) account savings. It’s penalty free access to your 401(k) money if this is ever something you need to consider, and you pay it back to yourself in your 401(k) account over time. There are risks to consider with a 401(k) loan to be aware.
- Your money in a 401(k) is typically protected from creditors or bankruptcy. While we all hope we are never in this kind of financial position, knowing this can provide some comfort during uncertain times.
Wishing you a healthy and prosperous 2021.