By Scott Tschappat
Americans are far behind on their retirement savings. According to Vanguard, the median retirement balance for people ages 55 and 64 is only $90,000—an amount not likely to generate much income in retirement. In Colorado specifically, approximately 40% of workers in the private sector do not have access to an employer-sponsored retirement account.
In response to this, Colorado lawmakers created a new program called Colorado SecureSavings, which will require businesses of certain sizes to participate in the program and offer a retirement savings plan to all their employees.
The hope is that if more workers have easier access to tax-advantaged retirement accounts, they will be more likely to save and put themselves in better financial shape when they reach retirement age. Since we focus on serving healthcare workers, and we know that many of them will be required to join this program as an employer, or have access to it as an employee, we’d like to discuss the requirements of the program, what the program offers, and how to get started.
Requirements of the Program
The law applies to all Colorado employers, who are required to sign up for the program in 2023 so long as they meet the three main requirements:
- First, this program applies to employers that have five or more employees, who worked for that employer for at least 180 days.
- Second, the business must have been in operation for at least two years or more.
- Third, the company must not offer a retirement savings program to their employees.
If a business meets all three of those requirements, they are required to sign up for the program in 2023. The specific date that the employer needs to sign up depends on the size of the company.
How the Program Works
Once an employer signs up for the program, every employee will have their own individual account that they own fully, and can take with them regardless of their relationship to their employer.
When the account is open, the employee will have two choices: they can either do nothing, in which case they will be automatically enrolled and 5% of their gross salary will be contributed to their account. Those proceeds will be invested in an age-appropriate target retirement date option.
If you prefer a more hands-on approach, you can change the contribution amount. You can increase or decrease the automatic 5% contribution, or you can opt out of the program entirely. Additionally, you can also manually select the investments in your account, using the options that the State of Colorado put in the program.
It’s also important to note that the State of Colorado has hired Vestwell, a retirement plan provider, to manage the program. To operate and manage the program, Vestwell will charge an annual asset-based fee of approximately 0.32%, as well as a $22/year account fee.
The account type employees will have access to is technically a Roth IRA, which is typically offered separately from an employer, which makes this a unique arrangement. The maximum contribution limit is $6,000 per year, and allows people over the age of 50 to contribute an additional $1,000 per year.
As with a Roth IRA, the money you earn and eventually contribute to this account will be included in your taxable income in the current year. However, as long as you follow all the rules, the money in this account will grow without taxes, and when you take it out after age 59½, you will not owe taxes on those distributions. That’s a pretty significant tax benefit!
The one downside for some employees is that there are income limitations associated with these accounts, and if your income is too high, you won’t be able to contribute to this type of account at all.
How to Sign Up
If you’re a small business in Colorado and meet the requirements to enroll in the program, time is of the essence to sign up. Details about signing up for the program can be found on the Colorado SecureSavings program website, and businesses can register for the program as long as they have their company’s EIN number handy at sign-up.
If you’re an employee at a company that does not currently have a retirement plan and meets the other requirements, then you’ll receive notification when your company signs up and your account is ready for you.
Are You Ready for Retirement Success?
While contributing to a Roth IRA—either through your employer or on your own—is a great starting point to work towards a comfortable retirement, it may not be enough. If you’d like to feel confident that you can retire when you want on your own terms, we’d love to help. You can schedule a 15-minute introductory phone call to get started!
Scott Tschappat is a wealth advisor at Acute WealthCare, an independent, fee-based comprehensive financial services firm with over 20 years of experience. Scott is committed to helping his healthcare worker clients create a financial plan that brings them comfort and dignity. Scott learned the importance of proper financial management and making a plan for the unexpected at a young age when his father passed away suddenly and he watched his mother use the life insurance money wisely to take care of their needs, both present and future. He strives to steward his clients’ money well, as if it were his own mother’s, and help them every step on the journey to their financial future.
Scott lives in Highlands Ranch, CO, with his wife, Bridget, a school counselor at All Souls Catholic School, and their two daughters, Sarah and Emily. He loves sports and has been lucky enough to coach both of his daughters’ basketball teams. In the spring and summer, you can find Scott getting his hands dirty gardening and enjoying live music at Red Rocks or another local venue. To learn more about Scott, connect with him on LinkedIn. You can also register for his latest webinar on What We Do & How We Help.