Retirement Plans for an Employer with Ten Employees - Essay Sample

Introduction

The traditional 401(k) is the most suitable retirement plan for an employer with ten employees or less who are in dire need to contribute. This plan is advantageous because it offers flexibility to the employer. Additionally, the high cost of administration automatically nets out to become positive. The contribution is made to a 401(k) plan on a pretax basis. The implication for this is that amount contributed is exempt from the current income tax to the federal government. Moreover, the earnings from 401(k) plan accrue on a tax-deferred foundation. Consequently, this plan will enable employees to earn dividends as well as capital gains that non-subject to taxes till they begin plan withdrawal. Thus, the employees will pay few taxes on this plan. For the employer, an alternative plan is traditional IRA for saving his or her own plan. Nevertheless, the employer should take care when engaging in Safe Harbor 401(k) since it is recommended only for high earning employers.

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Best Retirement Plan for Highly Compensated Employees

Highly compensated employees either receive $120,000 in compensation from their employer who sponsored their previous year's 401(k) plan or own 5% interest of the organization that sponsors the plan. The best plan for this category of employees is HCE 401(k) since it allows for catch up contributions in case these employees reach a certain minimum age limit, usually 50 years. Moreover, it gives employees major tax-advantaged savings and the employer is responsible for the sponsoring of the mandatory non-discrimination tests. Other than HCE 401(k) plan, a highly compensated employee can consider the traditional IRA plan and make non-deductible contributions to it. This plan has the advantage of a growing earning that is tax-free as well as an increased catch up contribution of $1,000 for those aged 50 years and above. Roth IRA can also be good for the highly compensated employee so long as their earnings do not exceed $ 135,000 for a single filed plan or $199,000 for the married who file jointly. Furthermore, the person who has had a Roth IRA plan for five years or more is entitled to a tax-free withdrawal in retirement.

Advice to a First-Time Employee from College

I would advise a new employee that retirement is inevitable for every person, hence the need to plan for it. Retirement planning is vital since it enables the employee to save and later withdraw the money to act as your earnings once you attain his or her old age. I would encourage the new employee to meet a financial planner for consultations to help in gaining the most genuine assessment of the retirement income. This will be instrumental as it will help him or her to begin planning for retirement as fast as possible. After that, the employee should visit the website of the social security administration to get an estimate of his or her benefits. Noteworthy, the employee should understand that retirement companies are closely regulated hence the difficulty to choose the best firm due to few recognizable differences. However, the employee should consider choosing the best retirement benefit provider based on the cost as well as customer service support. I would encourage the new employee who has just finished college to consider taking the 403(b) or 401(k) plan that the employer offers. The ramification for this is that the employee will begin investing in his or her future financial security.