401(k) Plans vs. State-Sponsored Plans, which one is best? As more states implement legislation in response to the SECURE 2.0 Act, which mandates small businesses to offer retirement benefits, many owners find themselves searching for private providers or considering state-sponsored plans.
When facing deadlines and penalties, the allure of state plans as simple and affordable options can be tempting.
But don’t be deceived! State plans have limitations, lack customization, hide fees, and may not adequately prepare for retirement. This leaves employees seeking additional investment options.
Now, let’s delve into the distinctions between state-sponsored plans and saveday’s 401(k) plan.
State Plans: Traditional Yet Limited
State-funded plans typically offer only Roth IRAs. With Roth IRAs, or Individual Retirement Accounts, employees contribute post-tax dollars, which means their money is generally tax free at the time of withdrawal.
There are some downsides to only offering IRAs in your retirement benefits plan. IRAs exclude high-income earners and have a maximum annual contribution limit of $6,500 in 2023, or $7,500 for those over 50. They are generally considered to be insufficient for retirement planning alone, meaning those who contribute to IRAs typically have to find another way to save money for retirement. In addition, many state plans tack on additional fees associated with plan management, which can make them a less attractive option than they appear.
On the positive side, state plans offer a straightforward solution for businesses seeking a retirement plan without extensive setup requirements. Enrollment in the state-sponsored plan means businesses will be compliant with state mandates, and can avoid costly penalty fees.
However, businesses often encounter limitations such as restricted investment options and a lack of personalization to align with specific business goals. Additionally, state plans may incur higher administrative costs, impacting your bottom line in the long run. State plans are also ineligible for SECURE Tax Credits, which can compensate for up to $16,500 in plan costs during the first three years of sponsoring a plan. 401(k) plan sponsors are eligible for these credits.
Saveday 401(k): Revolutionizing Retirement for Small Business
Let’s look at the features of a 401(k) that make it a compelling choice for small business owners:
1. Low for Employers
This is retirement planning the way it was supposed to be—with no middleman, hidden fees, or hassle. We cut administrative costs so that retirement benefits are accessible to everyone and so that small businesses can put that money back into their operations.
2. Personalized Guidance
State plans are cookie cutter, with IRAs treating everyone the same. Saveday offers Traditional and Roth plans, with a Risk Assessment that helps employees select the portfolio that’s best for them, and daily auto-rebalancing to protect portfolio health.
3. Empowering Employees
With saveday, employees can contribute up to $22,500 in 2023. Having the ability to contribute more to their retirement accounts puts employees much closer to their retirement goals than with an IRA. But that’s not all. Employees can also enjoy employer matching, profit sharing, and vesting schedules unavailable in state plans.
4. Streamlined Administration
Saveday simplifies the administrative burdens associated with managing a 401(k) plan. Our intuitive platform automates key processes, reduces paperwork, and offers seamless integration with payroll systems. Say goodbye to the headaches of complex plan administration and enjoy a streamlined experience that saves you time and effort.
Claim Your Victory with Saveday
In the comparison of State Plans versus offering a 401(k) through saveday, the clear victor emerges for small business owners seeking a retirement plan that maximizes benefits and flexibility. While State Plans seem convenient, saveday is the small-business retirement planning solution.
Empower your small business and provide your employees with a retirement plan that aligns with their aspirations. With saveday, retirement planning becomes an exciting journey that leads to a brighter future for all.
Looking to learn more? Expand your small business savvy by reading more of our blog here!
