Complicated financial matters are not necessarily easy to understand and are more often than not better left to the experts. Finding ways to spend money is easy but finding ways to invest your money wisely is not always a walk in the park. One way to invest money securely for your future though is in a 401K retirement account offered by your employer. This is a great way to save and invest money before it is taxed so you can effectively prepare yourself for your retirement. Social security is not going to be able to be around to help get most of us through the later stages of our lives so everyone needs to a plan accordingly and using a 401K to your advantage is a great place to start.
401K audits are required for ‘large’ plans that are offered by employers. What constitutes a large plan is one that has 100 or more eligible participants. A ‘eligible participant’ is anyone who is currently employed by a company whether they are contributing or not, those who are separated or have retired from the company who are receiving or still entitled to benefits and those who are deceased who have one or more beneficiaries who are either receiving or entitled to receive benefits. Very often, companies who do not even have 100 current employees have more than 100 eligible participants, so they are therefore required to hire a CPA firm to perform a 401K audit in order to be able to properly submit their form 5500 with the required information from the audit.
An accounting firm that is qualified to perform this kind and other financial audits employs licensed Certified Public Accountants to answer some very important questions about the audit to make sure that it is being properly managed and it’s participants interests are looked after accordingly. There are many ways that a 401K plan can be badly managed or employees can be taken advantage of or affected negatively if the plan administrator is not performing their due diligence or does not understand their fiduciary duties. These are complicated matters and that is why large plans normally benefit from this being a mandatory audit. The company’s who offer a 401K plan where the 100 participant threshold is met or exceeded is financially responsible for paying for the audit as well.
401K plans take advantage of a pre-tax, income-deference provision that was added to the Internal Revenue Code in 1978. Its intention was to give a break to income that was deferred for savings before it was taxed and it turns out that by accident, it became one of the best ways for a typical person to save for retirement. Because the contributions can only be taxed on the back-end when they are removed or rolled into another investment vehicle, this is an effective way to save and invest money. 401K plans are unique to the companies who offer them but they generally consist of investment opportunities in mutual funds, guaranteed insurance contracts, stocks, bonds and individual brokerage accounts.
When an employee signs up for a company-sponsored 401K retirement plan, they choose from the investment options made available to them and how much they want to contribute. Often, an employee will choose to contribute the same percentage of their income that their employer is willing to match in order to maximize their annual contributions without overextending themselves. Employer matched contributions are a common way for a company to put their money where their mouth is, so to speak, when it comes to investing in their employees and their futures. A company who matches any percentage is great but those who match up to six or seven percent or more are considered very generous.
CPA firms employ accountants with a variety of specialties including mortgage banking, hedge and mutual fund expertise, tax preparation and those with an impeccable knowledge of 401K plans. Whatever the need may be for any company who wants to know about their financial standing and where their vulnerabilities are, the right CPA firm has someone with the expert knowledge to give a proper and thorough analysis. Their job is to give an objective, expert opinion regarding whatever aspect of the company’s financials they are hired to look into. They say that numbers do not lie and when someone tries to prove that wrong, a CPA with a forensic accounting background who is trained to identify fraudulent accounting practices is there to help put the culprit behind bars with the help f law enforcement. Whatever the case may be, there is always a CPA for the job.