Save money in 401k to grow funds for retirement

Don’t settle for CalSavers when a 401(k) may suit you better

By the end of 2022, nearly every small to midsize business in California will be mandated by the state to offer their employees some type of retirement plan.

To simplify the process, California created the CalSavers Retirement Savings Program (CalSavers), so companies don’t have to set up their own retirement plan but may opt in to CalSavers. It is a kind of one-size-fits-all offering that is managed by the state of California. Enrollees under the age of 50 can save up to $6,000 a year, and for those over 50, may save up to $7,000 annually.

It is definitely a helpful step toward retirement savings for those who have not had the opportunity before, but, if the state is now mandating that a company has to have a retirement plan in place, why not make it more flexible and beneficial to the employees and the employer? With a 401(k) plan, you can do that.

In the past, companies may have assumed setting up their own 401(k) plan would cost too much and take too much time. With so many more products on the market, it has never been easier to set one up.

Advantages to setting up your own 401(k) plan

A 401(k) allows employees to put money into the plan every year, and you, as the employer, can match contributions as you choose. So, a 401(k) plan has the potential to be more financially beneficial than the CalSavers plan.

For those under 50 years old, they can contribute up to $19,500 per year, and, for those over 50, they can put in up to $26,000 annually. Being able to put that much more into retirement savings brings them closer to their retirement goals faster.

Also, CalSavers limits who can contribute to the plan: “High earners,” or those who make more than $135,000, if filing as a single taxpayer, and $199,000, if married filing jointly, are ineligible to participate in the state plan. This is not an issue with a company-sponsored 401(k) plan.

By setting up its own retirement plan, a company may also be eligible for a tax credit for employer retirement plan startup costs. If you qualify, you may receive up to $5,000 per year for three years for the “ordinary and necessary costs” from setting up specified retirement plans for your employees.

A differentiator for your company

One additional intangible benefit is what a 401(k) may mean for retaining current and attracting new employees, especially in a tight labor market. Making your company more competitive by expanding your benefits may be the exact reason why a good employee doesn’t leave or why that skilled applicant chooses you over a competitor.

To learn more about setting up a company-sponsored retirement plan, connect with Baker Tilly Wealth Management retirement plan professional Matt Payne.

Baker Tilly Wealth Management, LLC (BTWM) is a registered investment advisor. BTWM does not provide tax or legal advice. BTWM is not an attorney. Estate planning can involve a complex web of tax rules and regulations. Consider consulting a tax or legal professional about your particular circumstances before implementing any tax or legal strategy. The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought.

Baker Tilly Wealth Management, LLC is controlled by Baker Tilly Advisory Group, LP. Baker Tilly Advisory Group, LP and Baker Tilly US, LLP, trading as Baker Tilly, operate under an alternative practice structure and are members of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. Baker Tilly US, LLP is a licensed CPA firm that provides assurance services to its clients. Baker Tilly Advisory Group, LP and its subsidiary entities provide tax and consulting services to their clients and are not licensed CPA firms. ©2024 Baker Tilly Wealth Management, LLC


Matt Payne
Senior Advisor, Wealth
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