Approximately a million Colorado employees do not have access to a retirement savings plan through their employer, making it difficult to build a nest egg for their golden years. However, the state of Colorado has stepped up to meet this challenge with a solution of their own: The Colorado Secure Savings Program, powered by Vestwell.
The program is a state-sponsored retirement savings plan that allows employees without access to company-sponsored programs to save for their retirement. The program is open to all eligible Colorado residents with contributions placed into an individual retirement account (IRA). In this article, we'll answer some of the most commonly asked questions about the Colorado Secure Savings Program, as well as other options for retirement savings.
What Is the Colorado Secure Savings Program?
The Colorado Secure Savings Program, also known as Colorado Secure Savings, is a voluntary, government-sponsored savings program created to help employees working in Colorado build savings to last a lifetime. This program is overseen by the Colorado Department of Treasury and administered by Vestwell.
Colorado employees can make contributions to the program tax-free by taking automatic deductions from their paycheck and depositing it into an individual savings account (IRA), unless they choose to opt out.
How Does Colorado Secure Savings Work?
Colorado Secure Savings is an automatic enrollment program that places savings into a Roth IRA, which means that contributions are made with after-tax dollars. When you retire and start taking money out of your Roth IRA (like you’re paying yourself), there are no taxes. In other words, all the interest that your account earns over the years is tax-free.
Upon enrollment, employees will be opted into the default savings rate for Colorado Secure Savings: 5% of their gross pay. Beyond this, deferral rates may vary depending on how much you want to save each year. In addition, age, marital status, and income play a role in the amount that you can contribute.
The new Colorado plans will “travel with” people even if they change jobs or leave the state. Keep in mind that the program is voluntary and flexible. Employees are not required to participate, and can always cancel their participation at any time.
Which Businesses Have to Use the Colorado Secure Savings Program?
The new program will not require employers to provide their own plans. Instead, some employers will have to enroll their workers in the state government’s new program, which is expected to begin with a small-scale pilot in late 2022, followed by a broader launch in 2023. If your business falls under the criteria below, you are required to use the Colorado Secure Savings Program:
- Has at least five employees
- Does not already offer a qualified retirement program
- Has been active for more than two years
Companies offering 401(k)s or other retirement savings plans are not required to use the Colorado Secure Savings Program. However, according to state estimates, just over 40% of the state’s workforce could qualify for the plan.
What Are the Alternative Options?
If your business has ten or more employees and isn’t sponsoring a plan yet, you have several suitable alternative options. You can sign up for a:
- 401(k) or 401(a) plan
- 403(a): Qualified annuity plan
- 403(b): Tax-sheltered annuity
- 408(k): Simplified Employee Pension (SEP) plan
- 408(p): SIMPLE IRA plan
- 457(b): Governmental tax-deferred compensation plan
It's important to choose the best option for your employees and business, so be sure to select a plan that meets the needs of both your workers and your company.
What is the Timeline for the Program’s Rollout?
The program is launching in 2022, with the following milestones on the way to being fully operational in 2023:
- July 2022: Rules expected to be finalized
- October 2022: Pilot program launched.
- Early 2023: Full launch of Colorado Secure Savings
Though Colorado’s Department of the Treasury has announced that enrollment will begin in 2023, a hard registration deadline has not yet been set. Interested residents are encouraged to keep checking the Colorado Department of the Treasury website for updates and sign up when the program has been finalized and launched to avoid any penalties.
Who is Eligible to Enroll?
The program is open to all Colorado residents working for a participating employer. The employee must:
- Be at least 18 years old
- Earn taxable wages in the state
- Have worked for a Colorado employer for at least 180 days
Those qualified employees will automatically have 5% of their wages deposited into a secure IRA account unless they opt out. Other than that, no further details have been announced about the program yet.
Registration Deadline and Penalties
The program does not have a registration deadline at this time, as it has not been officially launched and only the year of enrollment has been announced. However, there will be penalties for failing to enroll in the program on time.
A fine of $100 per eligible employee will be levied for each year of delay, not to exceed $5,000 annually. It's important to check with an accountant or other financial professional to determine if your business is required to participate.
When withdrawing funds, participants can take out the money they contributed as well as any earnings without penalty for the first two years of enrollment.
Other Retirement Options in Colorado
The Colorado Secure Savings Program is an excellent option for retirement savings, but it's not the only option. A number of qualified retirement programs are available to employers in Colorado, each with its own benefits and drawbacks.
Vestwell, who is partnering with the state to administer Colorado Secure Savings, makes it easy for small businesses to offer best-in-class retirement benefits to their employees. A 401(k) allows workers to save money for retirement on a tax-deferred basis, lowering an employees’ taxable income for the year in which they contributed. These plans also offer higher contribution limits than other retirement savings options.
Employers can save on administrative costs with a 401(k) plan, potentially qualify for up to $16,500 in tax credits, and employees can choose the investment vehicles that best fit their needs.
Conclusion - Tax Breaks for Small Businesses
Though retirement plans are a great way to save money for retirement, many people do not have access to employer-sponsored retirement plans such as 401(k)s. Fortunately, Colorado Secure Savings is an important step forward in closing the savings gap and helping Coloradans of all ages prepare for retirement.
However, a company-sponsored plan may be the best option for your small business. Vestwell’s digital retirement plan platform that makes it easier for you to offer and administer a company-sponsored 401(k) or 403(b). By combining technology with best-in-class retirement plans and user-first design, Vestwell offers a wide range of services to small businesses everywhere.
If you are a Colorado employer interested in setting up a 401(k) account for your business, you can contact Vestwell to determine if you are eligible to receive up to $16,500 in tax credits, which can help cancel out administration costs. Interested? Learn more here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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