Improving your long term savings

Hi, I have been operating an electronics repair store for about four years now, and have set up all my employees with individual 401k plans. However, lately many of them have expressed that they are unsure about whether they are actually getting the maximum out of their plans. Do you have any advice on how to improve their savings?

Jason Nichols

New York City, NY

Hello Jason,

Before we begin, we would like to congratulate you on setting up and managing 401k plans for all your employees. These days it is quite rare to find employers who are willing to take on the extra work load of managing their subordinates’ saving plans. Coming back to your question, you can make use of a number of opportunities to increase the overall savings potential of a 401k plan.

If your employees are particularly concerned about how much of their 401k plans are being taxed, you may want to consider opting for a Roth 401k plan. With a traditional 401k plan, all employee contributions made towards the plan, while they are employed, are exempt from tax. Such employees do not need to pay any taxes right at the outset of the job. However, once an employee retires, there is a tax associated with every dollar that they withdraw from their 401k plan.

With a Roth 401k plan, employee contributions will be taxed right at the outset. While this may seem worse, remember that in the future, when your employees extract funds from their 401k plans, they will not be taxed at all. Essentially with a Roth 401k plan, your employees will be able to save more over the long-term. If your employees feel that they can afford to pay taxes immediately, without delaying them until their retirement, the Roth option may be ideal for them.

As an employer, it might be difficult to manage each individual 401k plan separately, based on an employee’s age, income and future earning potential. To counter this problem, you may want to consider opting for target-date retirement funds. Choosing this option, will basically free you from the hassles of following stocks and bonds on your own. Target-date retirement plans allow you to set a fixed year of retirement. For individuals who want to be more aggressive in their approach to savings, it may be wise to set a later date of retirement. More conservative approaches will mean setting a closer date of retirement. For more information relating to the various 401k plan options available to you, visit www.401keasy.com.