All too often, small businesses in California get stuck on retirement plans. With a focus on daily operations, thinking about retirement gets pushed to the side, but this critical piece of financial planning should not be ignored. Employers can help employees save for retirement, and employees should be thinking to the future and what they will need to retire.
Some of the most common retirement plans for small businesses in California come down to CalSavers or a 401(k). We are here to help employers and employees navigate these options to find something that suits their needs.
Through CalSavers, the savings rate increases by one percent each year until it reaches eight percent, by default. Employees can maintain the standard options for saving rates and investments or choose their own. As soon as an employer registers, employees will be automatically enrolled with the standard options if they do not customize within the first 30 days. CalSavers investment plans include Money Market Funds, Target Date Series, one ESG fund, one bond fund, or two stock funds.
Employees can decide if they want to participate in the 401(k) plan, and how much they want to contribute.
401(k)s cost an employer a small amount of money, in administrative costs, per-participant charges, and miscellaneous fees. Employers who choose to match or contribute to employee funds will also have to pay for the matching portion.
Employers who do not offer an alternative plan, who have more than five employees, must offer CalSavers.
Contributions are maxed out at $6,000 per year in 2022, or $7,000 for those over age 50.
Contributions are made with after-tax dollars.
Qualifying withdrawals of contributions and earnings are not subject to income tax.
At what age do you have to take distributions?
Under CalSavers, there is no requirement to take distributions while the account owner is alive.
A 401(k) is an optional type of employer-sponsored plan.
At what age do you have to take distributions?
Distributions must begin no later than age 70 and a half.
Every workplace has its own deadline to apply based on the size of the business. For businesses with over 100 employees, that was September 30, 2020, then June 30, 2021 for over 50 employees, and June 30, 2022 for five or more employees. Eligible companies can register at any time.
Employers who miss the deadline or fail to allow employees to participate will receive notice.
Employers who do not give their employees the option to enroll may face penalties of $260 per employee after 90 days of notice. After 180 days of notice, that increases to $500 per employee. Employees will not face the consequences of choosing not to enroll.
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