5 Tax and Workplace Benefits of Offering an Employee Retirement Plan for La Jolla Business Owners
Overview:
Offering a custom plan beyond CalSavers is an effective way for business owners in La Jolla to unlock tax benefits, add more value to their employees, and remain competitive among top talent.
There are several business owner benefits of offering an employer-sponsored retirement plan, including tax incentives, increased morale and productivity, and workplace loyalty.
Employees also benefit from tax-deferred growth, effortless saving through automatic payroll deductions, and high contribution limits that allow them to build wealth more quickly.
As a La Jolla business owner, providing an employee retirement plan can be a strategic financial move, in addition to benefiting your team and marketability. Offering CalSavers is a good start in helping your employees plan for the future while meeting the state’s legal requirements, but a custom plan can unlock meaningful tax benefits and provide more value to your existing and prospective employees while giving you more control. The benefits don’t stop there, either. Let’s explore how offering an employee retirement plan can be advantageous for your business and employees.
How La Jolla Employers Benefit From Offering an Employee Retirement Plan
From tax perks to attracting top talent, here are the five top ways employers can benefit from offering an employee retirement plan.
Attract and Retain Top Talent
To remain competitive, especially in regions like La Jolla and San Diego, highly qualified prospective employees have come to expect a customized retirement plan with robust benefits as a standard part of their compensation package. Around 87% of candidates rate retirement benefits as one of their top three priorities when choosing a job. Another study reported 73% of employees have access to an employer-provided plan, with 77% participating in a plan when offered. This underscores that the benefit is becoming increasingly commonplace and employees want and use it when they have access, creating recruitment opportunities for employers.
Boost Workplace Satisfaction and Morale
Offering a retirement plan to employees with benefits such as an employer match can demonstrate how you care for their financial well-being and future, fostering lasting professional relationships. Loyalty, satisfaction, and morale can improve when employees feel more secure about their future and less financially stressed. A retirement plan can be a powerful component of a sustainable and positive workplace culture built on trust, appreciation, and employees who feel valued.
Unlock Valuable Tax Deductions for Your Business
When you contribute to your employees’ retirement plan through an employer match, profit sharing, and other options, your contributions are tax-deductible. Essentially a business expense, this powerful deduction can help reduce your business’s taxable income for the year you contribute. To ensure you’re following all contribution limits and maximizing your tax opportunities, we recommend consulting a La Jolla financial advisor familiar with local and federal laws.
Qualify for Retirement Plan Startup Tax Credits
If you’re a small business considering launching a new retirement plan for your employees, there are 5,000 reasons you should. For companies with fewer than 100 employees, owners can receive a tax credit of up to $5,000 for the first three years they start their plan. Eligible expenses for the credit include plan setup, administrative costs, and employee education, for example. Additional credits may be available for incorporating an auto-enrollment feature, which you should discuss along with other potential benefits with your financial advisor.
Increase Productivity Through Financial Wellness
According to one study, 60% of employees reported being stressed about their finances, with one in three stating it negatively impacts their productivity at work. With stress affecting everything from mood and focus to searching for a higher-paying job, providing a benefit that alleviates financial worries can be powerful for California employers. In addition to an employer retirement plan, providing financial wellness resources and education can offer employees peace of mind and confidence, allowing them to make more informed decisions, better focus on their work, and increase their productivity.
How Employees Benefit from Enrolling in a Retirement Plan
When starting a plan, be sure to educate your employees; sharing the benefits they receive can help increase participation, making investing in an employer plan worthwhile.
Employee Contributions are Made with Pre-Tax Dollars
Employees who participate in an employer-sponsored retirement plan make pre-tax contributions, meaning taxes are not deducted from their paycheck. Why are pre-tax dollars significant? They provide an instant tax break to employees by reducing their taxable income in the current year and potentially the amount of taxes they owe annually, helping them save more for retirement and pay less in taxes — a win-win.
Grow Savings with Tax-Deferred Investment Earnings
Retirement accounts, like an employer-sponsored 401(k), are considered tax-deferred and not taxable accounts, which means your employees’ funds — including interest, gains, and dividends — grow tax-free, and they won't incur a tax until they withdraw their savings in retirement. While employees postpone their taxes until retirement, there are additional strategies they can explore with a financial advisor to help further reduce their tax bill in the future.
Benefit from Employer Matching Contributions
Around 84% of employers offer an employer match on retirement plans, such as 401(k)s, so offering one is a competitive necessity for employers when recruiting new talent. An employer match is a contribution the company makes in addition to what the employee contributes. It’s essentially free money for an employee and encourages higher participation in the plan to realize the full employer match, which is typically up to a certain percentage. So the more an employee contributes, the more an employer will match, which can add up to thousands of dollars a year toward an employee’s retirement.
Automatic Payroll Deductions Make Saving Easy
Ever heard the saying, “out of sight, out of mind”? That’s how automatic payroll deductions work. The feature is a simple way for employees to “painlessly” save for retirement, as contributions are consistently withdrawn from their paycheck and deposited directly into their retirement account. Since the money is saved before it hits their bank account, employees typically share that they don’t “miss” the funds, making it an effortless and disciplined way to save for the future.
401(k) Plans Offer High Annual Contribution Limits
Offering a 401(k) plan provides your employees with more opportunities to save for their retirement, with higher contribution limits capped at $23,500, plus an additional catch-up amount of $7,500 for employees over 50 (for 2025). Compared to a traditional or Roth IRA, which has a contribution limit of $7,000 with a catch-up contribution of $1,000, employees have the opportunity to grow tax-deferred wealth more quickly.
Employer-Sponsored Retirement Plans: Take Control of Your Future with Marine Street Financial
Offering an employer-sponsored retirement plan provides your business and team with lasting benefits that positively impact your bottom line, marketability, and workplace loyalty. Our team at Marine Street Financial helps business owners in La Jolla, San Diego, and nationwide explore and select custom retirement plans that align with their resources and needs.
With greater flexibility and value, now may be the ideal time to explore options that suit your business and discover how we can help you design a plan that fosters participation, attracts top talent, and makes both you and your employees feel more secure. Contact us today to learn more.
This material was prepared for Marine Street Financial use.
Source: PeopleKeep, November 3, 2023
Source: ASPPA, September 20, 2024
Source: PwC, January 2023
Source: SHRM, July 31, 2024