If your business employs 50 or more employees and does not sponsor a retirement plan, you were required to register for the State of California's new workplace retirement savings program, CalSavers, by June 30, 2021. If you have 5-49 employees, you have until June 30, 2022 to do so, but creating your own qualified retirement plan could offer more control, flexibility, and tax benefits than the state's default plan.
CalSavers was designed to ensure all Californians have access to a workplace retirement savings program, but it has some notable limitations. Employees can make voluntary contributions to the plan via an automatic payroll deduction. However, accounts are set up as Roth IRAs, which means they aren’t tax deductible, and annual contributions are limited to $6,000 if under age 50 or $7,000 for those 50 or older. By default, CalSavers invests 5% of an employee’s gross income in pre-determined funds based on his or her age – meaning your investment options within the plan are limited.
If your business has fewer than 50 employees, don’t wait until the June 30, 2022 to begin assessing your retirement plan options. Start talking with your financial advisor today about the ideal qualified retirement plan for your employees because it could offer you:
- More options for account types
- More flexibility of investment choices
- Tax deductibility
- The ability to include profit sharing or other benefits
- Higher contribution limits (typical 401(k) plans allow up to $19,500 for individuals under ago 50 and $26,000 for those 50 and older, annually)
- Potentially lower costs
- An ongoing resource for your employees to work with a financial planner
- Greater control
Retirement plans are an important component of employee benefits packages – helping individuals save for a financially secure future – and they also offer valuable tax savings for business owners. If you want to start a program such as a Safe Harbor 401(k), you’ll need to notify employees early in fourth quarter to launch in January. Don’t wait until the June deadline, or you could end up being forced into the state’s default plan.
In California, state law requires that employees have access to a workplace retirement savings program, but which plan to provide is the employer’s choice to make. Be sure to take the time to evaluate options and select what’s right for your business and employees.