This year’s National Retirement Security Week began on Sunday, October 17th. As with entering the workforce, exiting is a major milestone in someone’s life. Retirement is important, and allowing an employee to draw retirement-related benefits (pension or not) can help them adjust to post-career life more comfortably when they still have a modest source of income. To be honest, one of the most common questions for any office worker (and workers in general) is what a 401(k) is supposed to represent. We have the answers for decoding this enigmatic term!
So What Is It?
Let’s talk about what these plans are. It is a retirement savings plan that carries tax benefits for the person who takes advantage of it. It gets its name from the associated section of the U.S. Internal Revenue Code. Once you sign up for one, part of your paycheck is deposited into the fund instead of your bank account. Employers are allowed to participate by matching whatever contributions they decide to make. Traditional 401(k)s have a counterpart known as the Roth. The main difference between the two plans is how taxes are conducted on them.
How Does It Work?
When you opt for the traditional 401(k), you’ll notice that your gross income dips. This decrease counts as a tax deduction. Accordingly, it is considered “pre-tax,” and you don’t have to pay any tax money for it or any profits that come from it until after you begin withdrawal. That phase of the process typically coincides with full retirement. Meanwhile, the Roth plan relies on the post-tax mechanism. In other words, your income taxes are taxed right away, but on the upside, you don’t have to pay taxes on the money you’ll receive in the future.
Building the Financial Structure
You’ll hear about the 401(k) that it is a “defined contribution plan.” Both the employer and the employee (that’s you) can pay into the fund until you hit a threshold set by the IRS. What is colloquially known as a “pension,” the IRS calls a “defined-benefit plan.” Guaranteed investment contracts (GICs) also enter the picture when insurance companies are included in the proceedings.
A Customer Testimonial
Our latest testimonial comes from Theresa Teal, an employee of Joobani Dental Associates: “To whom it may concern, last summer Drew Skibitsky from MWE Partnership introduced Voluntary Benefits to our Dental Office. We are [a] smaller practice, most people have health insurance from outside of work, so it was exciting to be offered new benefits. The plans he brought to us were different than [from] health insurance and paid the staff cash benefits when someone in their family needs medical assistance.” Thanks so much, Theresa! We will have more from her next time. Also, well done, Drew!
Get Your Voluntary, Supplemental, and Health Insurance Policies with the MWE Partnership!
Are you a business looking to provide your employees with essential voluntary benefits? If so, look no further than The MWE Partnership. When you choose The MWE Partnership, you get experienced service and comprehensive voluntary benefit options that will meet all your employees’ needs. With over 17 years of experience, The MWE Partnership is your go-to provider for all your supplemental benefit needs. If you are interested in finding out how The MWE Partnership can help your business, contact us today! We encourage you to like our Facebook page and follow us on Twitter and LinkedIn for the latest voluntary benefit news!