401(k) vs. IRA
Which is best for my business & employees?
401(k)
✓ Available through employers only
✓ Contribute pre-tax dollars
✓ Higher contribution limit
✓ Fewer investment options
✓ Loans allowed in some plans
IRA
✓ No setup costs or admin fees
✓ Contribute post-tax dollars
✓ No minimum participation or ERISA requirements
✓ Broad range of investment options
What is the Secure 2.0 Act?
The SECURE 2.0 Act, signed into law in December 2022, introduced several key provisions aimed at enhancing retirement savings for both employers and employees. Overall, it aims to make it easier for businesses to offer retirement plans while giving employees more ways to save and access their funds when needed.
What this did for employers:
- Expanded Tax Credits – Small businesses (with up to 50 employees) receive higher tax credits for starting a new retirement plan, covering up to 100% of administrative costs (previously 50%).
- Automatic Enrollment Requirement – New 401(k) and 403(b) plans must automatically enroll employees at a minimum of 3% (starting in 2025).
- Employer Matching for Student Loan Payments – Employers can match employees’ student loan payments as contributions to their retirement accounts.
- Simplified and Reduced Penalties – Reduces penalties for errors in plan administration and allows more flexibility in correcting mistakes.
- Emergency Savings Accounts – Employers can offer linked emergency savings accounts within retirement plans, allowing non-highly compensated employees to save up to $2,500 in a Roth-style account.
What this did for employees:
- Increased Catch-Up Contributions – Starting in 2025, individuals aged 60-63 can make higher catch-up contributions to 401(k) plans (up to $10,000 or 150% of the standard limit).
- RMD Age Increase – The age for required minimum distributions (RMDs) increased to 73 in 2023 and will rise to 75 by 2033.
- Roth 401(k) Employer Contributions – Employers can now contribute to Roth 401(k) accounts, providing tax-free growth for employees.
- Emergency Withdrawals – Allows one penalty-free withdrawal of up to $1,000 per year from retirement accounts for emergencies.
- Part-Time Worker Eligibility – Employees working at least 500 hours per year for two consecutive years must be allowed to participate in their employer’s 401(k) plan.
Choosing the right retirement plan for your business—whether a 401(k), Traditional IRA, or Roth IRA—depends on your company’s size, financial goals, and tax strategy. A 401(k) plan offers higher contribution limits and flexibility, making it ideal for businesses looking to attract and retain employees. SEP and SIMPLE IRAs provide cost-effective, easy-to-manage options, especially for small businesses and self-employed individuals. A Roth IRA allows after-tax contributions, offering tax-free withdrawals in retirement—an excellent option for those expecting higher future tax rates. The right choice can maximize tax advantages, boost employee satisfaction, and strengthen your business’s financial health.
Not sure which plan is best for your company? Contact us today for a personalized consultation to explore your options and build a retirement strategy that works for you and your employees.
