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Access to a work-based retirement plan depends at least partially on where you live.

In the past decade, 16 state legislatures have approved retirement savings programs for workers whose employers don’t offer a 401(k) plan or similar option. Some programs are ongoing, while others are in the planning stage.

There are also volunteers for some companies. But most companies are required to offer their own 401(k) or facilitate automatic enrollment of their employees, who can opt out, into individual retirement accounts through the state’s so-called Auto-IRA program.

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“On average, we’ve seen one or two new state programs enacted each year, and we expect this trend to continue into 2023,” said Angela Antonelli, executive director of Georgetown University’s Center for Retirement Initiatives.

“We should see the program assets exceed $1 billion soon and more than one million savings accounts by 2023, and then continue to grow rapidly,” Antonelli said. ,

Last year, Maryland and Connecticut launched their own IRA programs, joining Oregon, California and Illinois. Colorado and Virginia are expected to do the same this year. Others, including Delaware, New Jersey and New York, are still in the planning stages.

Overall, 46 states have taken steps to implement a program for uninsured workers since 2012, consider legislation to start one or are studying their options, according to Antonelli’s organization.

Although there are some differences between the programs, they typically involve automatic enrollment of employees in a Roth IRA with payroll deductions around 3% or 5% until the employee opts out (about 28% per month). ). 30% do, Antonelli said). There is no employer fee and the accounts are managed by an investment company.

Contributions to Roth accounts are not tax deductible, as is the case with 401(k) plans or similar employment options. Traditional IRAs, contributions to which may be tax-deductible, are an option in some states, depending on the specifics of the program.

In existing Auto-IRA programs, workers have contributed more than $630 million to 610,000 accounts through 138,000 employers, according to the center.

Of course, there’s still a long way to go to reach the estimated 57 million workers who don’t have access to an employer retirement account.

Although you can set up an IRA outside of work, according to the AARP, people are 15 times more likely to save if they can save through a work plan.

Larger companies are more likely to offer 401(k) plans. According to the US Bureau of Labor Statistics, 90% of employers with 500 or more employees offer a plan. This compared to 56% among companies with fewer than 100 employees.

Auto-IRA programs address this disparity: All but the smallest businesses — for example, those with fewer than 10 employees or those that don’t use an automatic payroll system — are required to participate in or offer their own plan. .

It looks like some companies are turning to 401(k): Since the launch of the first three auto-IRA programs: Oregon (2017), Illinois (2018) and California (2019), the growth rate has been 35%. % More. These states have more new 401(k) plans from private companies than other states, according to recent research by the Pew Charitable Trusts.

“We’ve seen an increase in new 401(k) plans in states that have adopted home IRAs,” said John Scott, director of the Pew Retirement Savings Project. “A lot of employers say they will have a 401(k), so in many ways I think state programs put pressure on employers to offer 401(k) plans.”

The change at the federal level, enacted as part of the SECURITY Act of 2019, aims to help small businesses offer 401(k) plans. Instead of sponsoring their own plan and handling the administrative and fiduciary responsibilities that come with it, they can join with other companies in a so-called joint employer plan, a type of shared 401(k).

The legislation, known as Secure 2.0, which was adopted last month, includes provisions to further enhance the attractiveness of group planning.

trying to fill the idea gap as much as possible,” Scott said.

While Congress has so far seemed reluctant to allow companies to offer 401(k), lawmakers have included a mandate in Safer 2.0: 401(k) plans that will automatically enroll your employees. However, it does not include existing schemes, companies with 10 or less employees and companies less than three years old.

State programs have limitations. For example, they do not offer matching contributions like many 401(k) plans.

Contribution limits are also lower than 401(k) plans. However, you can put up to $6,500 into a Roth IRA in 2023. The higher the income they can bring in, if at all. In addition, anyone age 50 or older is entitled to an additional $1,000 “catch-up” contribution.

For 401(k) plans, the contribution limit is $22,500 in 2023; those 50 and older are eligible for an additional $7,500.

However, Roth IRAs, unlike traditional IRAs or 401(k) plans, also do not incur a penalty if you withdraw your contributions before age 59½. However, there may be taxes and/or penalties for withdrawing winnings early.

The programs are also driven in part by necessity. Essentially, states have recognized that doing nothing means further straining state-funded social services for financially strapped retirees.

“States have taken the initiative to close the access gap,” Antonelli said. “The cost of doing nothing is enormous, with budget and fiscal impacts estimated in the billions of dollars for many states over the next 20 years due to aging populations that will leave little or nothing for retirement.

Nation World News Desk
Nation World News Deskhttps://nationworldnews.com
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