401(K) Vs Pension: How 401(K) Beat Pension in the Race

401(K) Vs Pension: How 401(K) Beat Pension in the Race

By Congruent Solutions

© 2020-2021 All Rights Reserved, No part of this document should be modified / used without prior consent.

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401(K) was introduced in 1978, and it has grown fast and is the leading retirement plan that most employees choose. Pensions, on the other hand, are shrinking in popularity and adoption amongst employees.

How did 401(K) manage to do this, and what is making it the “go-to” retirement plan for many employees in the US? And how pensions are a thing of the past now.

Why 401(K) Is Preferred A 401(K) is a retirement account in which employees contribute a portion of their salary and the employer matches the employee’s contributions. This is a long-term investment plan set for retirement. A 401(K) is a defined contribution plan. The contribution made by the employee and the employer is not taxed until the employee withdraws it before the age of 59. Over 100 million Americans are covered by 401(K) or similar retirement © 2020-2021 All Rights Reserved, No part of this document should be modified / used without prior consent.

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plans. With retirement and pension management software, you can consciously plan your contribution towards your retirement plan.

What Is a Pension Plan?

In a pension plan, once the employee retires, the employer gives a monthly payment as long as the employee has met certain eligibility criteria. The employer keeps paying the monthly payment as long as the employee lives after he/she has retired. The employees don’t make any contributions, as they would in a 401(K) matching the employees’ contributions. In 2019, only 14% of the Fortune 500 offered pensions to new recruits. From an employee standpoint, pensions don’t have any downsides on paper, but there is a possibility of an underfunded pension.

Why Is 401(K) Winning?

Due to underfunding, the government is struggling with how to pay the pensions of civil servants and teachers. Private sectors can’t © 2020-2021 All Rights Reserved, No part of this document should be modified / used without prior consent.

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afford this responsibility as there is a risk for both the employer and the employee. Hence, a 401(K) is the safest retirement account for both the employer and employees. A retirement withdrawal software also helps you calculate various withdrawal strategies to minimize taxes during retirement.

Pensions and 401(K) are the top 2 types of retirement payroll solutions in the United States. A 401(K) is the safest retirement account when compared with a pension account. On the other hand, it can be obtained by people who already have a 401K account.

Congruent offers the best retirement and pension management software, form 5500 filing that simplifies the retirement savings process.

© 2020-2021 All Rights Reserved, No part of this document should be modified / used without prior consent.

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