Help employees plan for their future

If your firm administers its own 401(k) retirement fund, there is important news to share with staff regarding 2010 contributions.

Employees who are 50 or older who were hoping to ‘catch up’ by taking advantage of higher limits for 401(k) and IRA retirement funds in 2010 may be disappointed that 401(k) and IRA pre-tax limits will remain at 2009 levels.

The limits for 2010 are:
401(k)–$16,500, with the maximum catch-up contribution of $5,500 for employees 50 and older
IRA–$5,000, with the maximum catch-up contribution of $1,000 for employees 50 and older.

In 2001, the Restoring Earnings to Lift Individuals and Families (RELIEF) Act was passed to allow individuals and families to catch up on 401(k) contributions and build their retirement funds faster.

In recent years, the pre-tax contribution limits climbed until they’ve reached today’s current limit of $16,500 and $5,500 catch-up.

Because the limits remain at 2009 levels, there is no opportunity for employees to use their IRAs and 401(k)s to bolster their retirement services pre-tax.

Contributions and employer-match contributions are exempt from taxes under a certain limit. If that’s the case, you must inform staff that taxed contributions also have a limit. Total contribution allowed to a 401(k) plan is $49,000 and 100% of compensation, whichever is less.

Taxed contributions allow employees to build their retirement nest egg, minus the tax advantages.

No such ‘after-tax’ contribution exists for IRA accounts, but there is nothing stopping individual investors from creating a long-term savings plan as an additional retirement measure.

Employers can educate employees to help them see the benefit of contributing to their own retirement, pre- and post-tax. Vehicles for post-tax contributions include mutual funds, CDs and bonds.

Mandatory IRAs?

President Obama’s 2010 budget may feature an automatic IRA requirement for companies who have been in business two or more years and have 10 or more employees. This means that companies who qualify must enroll their employees in an IRA plan with an option for the employee to opt-out.

Some may complain that a mandatory IRA would be a burden for companies who do not currently offer an IRA. It would also impose payroll costs on a company’s payroll system. however, the benefits of financially secure employees outweigh the burden.

Outsourcing IRA and 401(k) administration to payroll services and human resource firm

There are many rules and regulations that must be followed and communicated to employees when it comes to IRA and 401(k) accounts. If your small firm is having trouble keeping up with changes, or perhaps you don’t have a fund because it’s too time-consuming, consider outsourcing.

A reputable human resources firm with payroll services can administer your retirement plan, which includes taking contributions, adding company match funds and adjusting employee’s payroll checks accordingly.

And, many payroll services firms with human resource specialization can provide employee training to keep everyone informed.

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Limits on 2010 401(k) and IRA Contributions Remain at 2009 Levels …