Another state has joined the growing list of those aiming to boost workers’ retirement savings at companies that don’t offer a 401(k) or similar work plan.
Delaware Governor John Carney signed a bill in legislation Thursday that will create a state-run program to automatically enroll eligible private sector workers into Roth Individual Retirement Accounts. The state will join more than a dozen other jurisdictions that have already launched similar programs or are planning to do so.
So far, workers have amassed more than 500 million dollars through these state-administered retirement savings options, according to the Center for Retirement Initiatives at Georgetown University.
Learn more about the Investor Toolkit:
3 tips for paying off your credit card balance
House Democrats call for Social Security reform
Investors flock to green energy funds
“This milestone of more than half a billion dollars and more than half a million savings accounts funded demonstrates that these programs address a long unmet need,” said Angela Antonelli, executive director of the center. .
“Workers want [to save] and save when it is made easy for them and offered by their employers,” Antonelli said.
According to the centre’s research, approximately 57 million workers have no pension plan offered by their job.
Roth IRAs offer participants some flexibility
While there are some differences between the state initiatives, most of them involve automatically enrolling employees into a Roth IRA through a payroll deduction starting around 3% or 5%, unless the worker withdraws.
There are no fees for employers and the accounts are managed by an investment company. States can also exclude very small businesses — that is, those with five or fewer employees — from having to participate in the program.
For workers who might end up enrolling, it’s worth knowing that contributions to Roth accounts are not tax deductible, as is the case with 401(k) plans or similar options in the place of work. Traditional IRAs, whose contributions may be tax-deductible, may be available as an alternative option in some states, depending on the specifics of the program.
However, Roth IRAs — unlike traditional IRAs or 401(k) plans — also incur no penalties if you withdraw your contributions before age 59½. However, to withdraw winnings earlier, there may be a tax and/or penalty, depending on the circumstances.
Additionally, these Roth accounts will generally not have an employer match on contributions at work, as 401(k)s often do.
Annual Roth IRA contribution limits are also lower. You can contribute up to $6,000 to a plan in 2022, although high incomes are limited in what they can bring, if at all. In addition, anyone aged 50 or over is entitled to an additional “catch-up” contribution of $1,000.
For 401(k)s, the contribution limit is $20,500 in 2022, those 50 and older are eligible for an additional $6,500.
Since 2012, at least 46 states have taken steps to implement a retirement savings program for uncovered workers, consider legislation to start one, or study their options, according to Antonelli’s organization.
While larger employers are more likely to offer a pension plan, administrative burdens or costs can hamper small business owners’ willingness to set one up. Thus, these state-run programs can increase access to a work plan for these workers.
“Small businesses want to offer their workers a way to save for retirement, especially now in a competitive job market, and state programs make that possible,” Antonelli said.