In the modern business world, most companies offer competitive benefits to potential employees to not only entice the best candidates to their corporation, but to supply their workforce with top-of-the-line benefits to create a great workplace for their employees. 401(k) plans are both an excellent addition to your benefits package, but can also help you as a business owner in numerous ways.
Understanding 401(k) plans can be a little challenging. There are multiple facets to retirement plans that make each unique 401(k) different. Finding the best plan is crucial as a business owner, no matter the size of your company. You can accomplish this by learning about the different options and features available in various 401(k) plans.
One important feature of a 401(k) plan to consider is the contribution limit on the plan. A 401(k) contribution limit impacts both employee and employer, so learning what these contribution limits are and how they affect your 401(k) plan is crucial.
What Are 401(k) Contribution Limits for 2018?
A 401(k) contribution limit is the maximum amount of money per year that an employee or an employer may put into their 401(k) plan. These limits operate on a changing basis. For example, the 2018 401(k) contribution limit has changed for employer sponsored 401(k) plans.
Factors that typically impact these 401(k) contribution limits are age and overall compensation level. 2018 is a big year for 401(k) contribution limits, as the IRA has raised the limits once more. In 2017, the basic employee contribution limit was $18,000 per year. However, the 2018 401(k) contribution limit is now $18,500.
In order to maintain a fair balance between employees at different levels of compensation, the IRS may utilize non-discrimination testing.
How Do Contribution Limits Work?
401(k) contribution limits do not simply affect the employee. Since many 401(k) plans offer a employer contribution as a perk, these limits will also affect you as the business owner.
Employee contribution limits are usually much lower than that of an employer. While employer 401(k) contribution limits are also capped, this number is always at a significantly higher level. The change in the 2018 401(k) contribution limit has also changed what you (the employer) are required to contribute as well.
Much like the employee 2018 contribution limit, the employer contribution limit has increased by $500. In 2017, these limits were $36,000. The 2018 employer 401(k) contribution limit, however, has increased to $36,500. This number is subjected to the overall limit on total contributions.
2018 Total Contribution Limits
Despite the importance of saving for retirement for all employees, the IRS imposes these limits caps on the total amount that can be contributed each year. This remains true for all employees, regardless of income level.
The total contribution limit in 2017 was $54,000, or 100% of employee contribution (whichever number is lower). This limit may be reached a number of ways. Employee salary deferrals, after-tax Roth contributions, and also the employer matching and elective contributions all help reach the total contribution limit for the year.
Another important piece of information to remember is that this limit applies to the aggregate contributions to all 401(k) plans an employee might own. In 2018, the total contribution limit has increased to $55,000.
Catch-Up Contribution Limits
Catch-up contribution limits change things entirely. If you’re unfamiliar with the term, a catch-up contribution limit applies to any employee aged 50 years or older.
In an effort to help encourage individuals who are approaching retirement age to save for retirement, the IRS allows any 401(k) participants 50 and over to make additional financial contributions to their retirement plan after maximizing the standard contribution limit (in 2018, $18,500).
This means that once an employee 50 years old and over has reached this limit, the IRS allows for them to make an additional catch-up contribution of $6,000. So, an employee who may be 53 years old and have met the $18,500 contribution limit may in fact reach their limit at $24,500 including their maximized catch-up limit.
How Contribution Limits Affect You
As an employer providing contributions to your employees’ 401(k) plans, you can decide how much money you want to contribute to these plans. With a fixed contribution limit, you can decide whatever monetary amount you wish to contribute based on a percentage. Typically, this percentage is based on the company’s profits for the year. You can choose any percentage you’d like, even as low as .5% of the profits for the year. Or, in the case of a Safe Harbor plan, the average is a set 4%.
Providing contributions to your employees’ 401(k) plans saves you money. Even if your employees do not reach their max contribution limit in 2018, any contribution you provided (max or not) for the year can be considered as a tax write-off. This is true for every employee that contributes to his or her 401(k) for the year. Meaning, whether your a large company with 500 employees, or a small practice with 2 employees, you can potentially write off 2 or 500 contributions to these 401(k) plans.
Furthermore, apart from the tax-write off benefits for any employer contributions to the 401(k) plan, the administration costs associated with the plan can also count as a tax write-off for the year. In the end, 401(k) plans can help save you money every year just by providing the benefit alone.
How the Storick Group Can Help You
Providing a safe and secure future is important, as is saving money. Using your employer contributions and administration costs for the plan, you can ensure tax write-offs for your business year-after-year. Keeping in mind that the 401(k) contribution limit for 2018 has gone up, this means that even more money can be saved.
At the Storick Group, we value our clients and their interest in protecting their employees’ futures. We offer a wide variety of plans that can cater to small businesses, big businesses, medical or law practices. Wherever your company may fall on the spectrum of business, the Storick Group can help you find the perfect 401(k) plan for your company.
That’s why we’ve made our services the most affordable 401(k) plan administration around. Through the Storick Group, they have a group of 401k providers that the company can broker through in order to provide a low cost 401k plan and administration. Featuring unbelievably low annual fees- as low as $65 PER YEAR- we guarantee that you won’t beat our pricing or customer service. We’re committed to bringing you and your employees the absolute best in retirement plans. The Storick Group is here for you.
So, what are you waiting for? Make the call today and stop overpaying for 3rd party administrator 401(k) plans. Choose the Storick Group for your inexpensive pension administration!