Free and cheap retirement plan options for small businesses

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Free and cheap retirement plan options for small businesses
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Saving money for retirement is easy if you work for a giant corporation. They have 401(k) plans that are generally pretty simple to enroll in and could even be set up with low-cost providers. Plus, they’ll often have a match where they’ll kick in 50 cents or a dollar for every dollar you save, up to a certain point.

But half of us work for smaller businesses and they don’t have retirement plans in general because they’re too cost-prohibitive to the employer. So where can you turn to and what can you do? Fortunately, there are a lot of options popping up…

Read more: Clark’s investment guide

Gearing up for the first mandatory state-run retirement plan

California is blazing the trail of providing a mandatory, state-run retirement plan in which employers will be required to automatically enroll workers, according to the New York Times. The plan won’t kick into gear until next year, but when it does, the Golden State looks set to become the first state to make such a move.

Employers with five or more employees on the payroll will be required to participate in the Secure Choice Retirement Savings Program, though the smallest of them will have three years to get ready.  

Deductions will start at 3%, but workers also have the choice of opting out completely. The hope is that the process to opt out will be sufficiently difficult so most workers  will just give up and choose to save for their future instead! 

The move by California is expected to benefit six million workers who otherwise would not have access to any retirement plan at work.

As for fees in the program, they’re being capped at one percent of assets. While that’s not exactly low cost, it’s not horrible either considering that this move will provide a leg-up on retirement for a whole segment of the population that previously thought retirement was out of reach.

Other states around the country are closely watching what happens in California. Connecticut, Oregon, Maryland and Illinois are all building out similar state-run programs.

A free option through the federal government

Moving one step up the food chain, there’s also a totally free retirement plan that’s now available to small employers through the U.S. Treasury. It’s called myRA.gov and it has no set up fees, no ongoing fees and you cannot lose money in this plan.

The myRA (retirement account) plan has a cap of $15,000. So at that point you’re kicked out of the program and have to go to your own Roth account at a traditional provider like Vanguard, Fidelity or T. Rowe Price. But this is all about getting you in the habit of saving and it’s a good start.

If you’re a small employer, you can offer this benefit to your employees at no cost to you starting right now. And it will be a benefit that makes you more competitive with the big guys!

ForUsAll and HonestDollar offer another route

If the government-sponsored options don’t appeal to you as an employer, HonestDollar.com offers a variety of simple retirement plans at very low cost. Under their basic plan, you get a Roth or Traditional IRA with the following terms:

  • Employer can’t contribute
  • Doesn’t require every employee participate
  • Tax deductible for employees (Traditional IRA only)
  • Max contribution is $5,500 (under 50) or $6,500 (50 and over)

If that doesn’t suit you, you can elect a SEP IRA where the max contribution is $53,000 or 25% of compensation. That option allows you as an employer to contribute to your employees’ plans.

Another option is ForUsAll.com, which charges a tiny fraction of what it would normally cost you to offer a 401(k).

On the other hand, maybe you are self employed as a one-person entity. In that case, you can go to a big boy like Schwab or Vanguard and get a retirement plan with no admin costs at all. You can do Roth IRA, a SEP or a self-employed 401(k).

So the roadblocks to retirement are coming down piece by piece. Morningstar reports that players like ForUsAll and HonestDollar typically cost one-fifth of one percent per year when it comes to management fees. That is extremely low, lower than most big employer plans would charge you.

Read more: The #1 tip to help maximize your 401(k) investing

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Theo Thimou About the author:
Theo is director of content for clark.com. He has co-written 2 books with Clark Howard, including the #1 New York Times bestseller Clark Howard's Living Large in Lean Times.
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