MarylandSaves is a new state-sponsored retirement program targeting employees who work for private-sector employers that do not currently offer a retirement plan. The state program allows employees to save for retirement through a Roth IRA called a “WorkLife Account.”
In order to qualify for a MarylandSaves program, employers in Maryland need only have been in operation for two or more years and have at least one W2 employee.
Key features of the MarylandSaves program
- The annual contribution limit is $6,000. Participants aged 50 or over can contribute an additional $1,000 in “catch-up”.
- The MarylandSaves program limits participants to four investment offerings (including a suite of Target Date Funds).
- The MarylandSaves plan has a mandatory deferral rate of 5% with a 1% annual increase up to 10%.
- Contributions to the MarylandSaves plan are on a “Roth” basis, meaning they are taxed before they’re deposited and potentially tax-free at the time of distribution.
- There is no direct cost to employers because the expenses are built into the investments so that participants pay all the costs.
Questions we have about the MarylandSaves program
Though scheduled to rollout on September 6th 2022, many key details of the MarylandSaves program are still coming into focus. While the program says that most Maryland employers are required to offer some type of retirement savings, be it a 401(k) or a MarylandSaves program, there doesn’t seem to be any penalties or enforcement mechanism for those that do not.
The MarylandSaves plan also states that their program “works seamlessly with any payroll process,” however, communications from the largest payroll service providers indicate that this is not the case, with the program only supporting manual contribution deposits. We’ve reached out to the Administrators of the program for clarification.
How the MarylandSaves program compares to a 401(k)
For employers that have been contemplating establishing a retirement plan before this program was introduced, there are some key differentiators to keep in mind.
- The 401(k) contribution limit is significantly higher in a 401(k) compared to the MarylandSaves plan. For 2022, 401(k) participants can contribute $20,500 with an additional $6,000 in catch-up contribution for participants over 50.
- Unlike a MarylandSaves plan, business owners are able to make tax-deductible employer contributions, such as a match and profit sharing, to a qualified 401(k).
- 401(k) plans can provide an array of investment options compared to the narrow offerings in the MarylandSaves program.
- In addition to the Roth feature, 401(k) plans also support a traditional pre-tax deferral option that offers additional benefits from a personal income tax perspective that a Roth-only arrangement would not.
- Plan sponsors can choose to set up a 401(k) plan in which the fees are passed on to the individual participants as well, but alternatively the business can pay some of those costs directly, which is a deductible business expense, while providing lower cost investments to the benefit of the individual participants.
We’re All In
While the MarylandSaves program’s goal of helping Marylanders save for retirement is wonderful, there are still details that need to be clarified. The MarylandSaves plan may be an option for some companies; however, for many business owners offering a 401(k) to satisfy the pending requirements may be a better option. We are watching this program’s roll out carefully and will be available to answer questions. Feel free to contact us at (410) 363-7211 or by sending us a message in the box below.
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