With unemployment at an all-time low, companies, especially small and medium size businesses, are looking for ways to compete for the talented employees they need in order to grow and succeed. Offering the types of employee benefits and additional perks that employees desire is a great way for employers to stand out. As part of a comprehensive benefits package, a retirement savings plan can help to attract and retain top talent, and may even be required in some areas.
As a small business owner, here are some things you need to know—and communicate to your employees—about upcoming changes to retirement benefits in 2019.
Changes coming to retirement benefits in 2019
The IRS recently announced cost-of-living adjustments, which will increase the dollar limits on contributions to certain retirement plans for tax year 2019. The changes include an increase in contribution limits that will affect 401(k), 403(b), and some 457 and federal government thrift savings plans. The contribution limit increase is from $18,500 a year to $19,000. The catch-up contribution for individuals over the age of 50 remains unchanged at $6,000. Additionally, the regular and Roth IRA limits were raised to $6,000 annually from $5,500, including an additional $1,000 for individuals over the age of 50. This is the first increase in IRA limits since 2013.
With the new year and new limits approaching, 2019 is a great time to guide your employees in evaluating their retirement savings. Here are five things employees can start doing now, no matter how close or far from retirement they may be, to maximize their funds during their golden years.
1) Start thinking about retirement goals
It can be hard to predict what life may look like years from now but if employees can at least start to paint a picture in their head of how they want to spend their retirement, they can begin to assess how much money they may need. Thinking through the following can help them decide how much money they should save in order to reach their goals:
What age would they like to retire? How long until they reach that age?
Where do they plan to live during their retirement? Do they plan to move to a city where the cost of living is currently cheaper? Will the place they live be more expensive?
What do they plan to do during their retirement? Travel the world? Work part-time? Do they plan to live lavishly or more frugally?
What investments and savings do they currently have that are earmarked for retirement? Do they currently own a home or have other assets? How far are they from reaching their financial goals based on their current assets?
2) Participate in the company-sponsored retirement savings plan
According to a study from Transamerica’s Center for Retirement Studies, 49 percent of workers expect to self-fund their retirement primarily through 401(k)s, 403(b)s, IRAs or other savings and investments. If your company offers employees a retirement savings plan, you’ll want to encourage them to participate. An employer-sponsored retirement plan is an easy way for individuals to save with minimal effort since the company automatically deducts their contributions on each paycheck and deposits them directly to the employee’s retirement account. Some plans even allow employees to set their rate to increase automatically after a certain amount of time.
If you offer a matching contribution with employee retirement benefits, it’s a good idea for employees to make sure their contribution at least meets the full amount of the company’s match. If it doesn’t, then they’re essentially passing up free money that could help them grow their savings.
If you don’t offer retirement benefits, you may want to start as more and more employees are looking for this benefit from their employer.
3) Contribute to an IRA
A traditional or Roth IRA can be a great way to save for retirement. A traditional IRA will allow employees to contribute up to $6,000 in 2019 on a pre-tax basis. The funds in a traditional IRA are taxed when they are withdrawn. Alternatively, employees can contribute the $6,000 on a post-tax basis through a Roth IRA.
4) Take advantage of compounding interest
Even though it is never too late to save for retirement, the earlier saving is started, the better. This is due to compounding interest. With the compounding of interest, employees earn interest on their interest, which helps their savings to grow more rapidly over time.
This concept can be confusing but 401Khelpcenter.com provides more information, including an example, to help illustrate how it works.
5) Participate in the saver’s credit program
Employees with a lower income level may qualify for the IRS’s saver’s credit program. This program provides a tax credit, in addition to the standard tax deduction, for employees who earn up to $32,000 individually, $48,000 as head of household or $64,000 for married, filing jointly. Employees who qualify can receive a credit between 10% and 50% of their retirement plan or IRA contributions.
For more information on how offering retirement benefits can help your company and your employees reach their long-term goals, contact TriNet.
This communication is for informational purposes only; it is not legal, tax or accounting advice; and is not an offer to sell, buy or procure insurance.
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