CalSavers, a new state-sponsored retirement savings program in California, requires eligible employers without a company-sponsored retirement plan to set up Roth IRAs for employees, to which they can contribute through automatic payroll deductions.

A Roth IRA allows you to save after-tax earnings now and withdraw the money tax-free during retirement.

Registration for employers of all sizes opened July 1, and the deadline for employers with more than 100 workers is June 2020. CalSavers plans will roll out over the next three years with different deadlines for different-sized companies.

There are similar programs in place in Connecticut, Maryland, Oregon, Illinois, and Seattle.

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Saving for retirement just got easier for millions of Californians.

Beginning July 1, workers at California companies with no employer-sponsored retirement plan may be able to contribute part of their paycheck to an individual retirement account (IRA) through a new program called CalSavers.

The program began its pilot phase last fall, offering Roth IRAs to employees at participating companies. Since then, 1,586 total accounts were funded, with an average monthly contribution of $85 and an average monthly savings rate of 4.94%. Calsavers has plans to add traditional IRAs to the line-up in 2019.

A Roth IRA, or individual retirement account, allows you to save some of your after-tax earnings now and withdraw the money during retirement tax free. A traditional IRA is the opposite: Anything you contribute now up to the federal limit of $6,000 in 2019 will be eligible for a deduction on your current tax return, but it will be taxed as income on the backend.

Roth IRAs are often recommended by financial experts for average earners because of the tax savings: You're only taxed on your initial contributions to the account, not on the money you withdraw (which includes years of tax-free investment earnings).

In 2019, the IRS says you can contribute up to $6,000 to an IRA (that's total, for a Roth and Traditional IRA) if your adjusted gross income is less than $122,000 as a single-filer or less than $193,000 if you're married and filing taxes with your spouse. If you're 50 or older, the limit rises to $7,000.

To be clear, anyone can open and contribute to an IRA and it doesn't have to be facilitated by your employer, like a 401(k) does. But according to research from AARP Public Policy Institute, American workers are 15 times more likely to contribute to a retirement plan when it's operated by their employer in the form of an automatic payroll deduction — and some 55 million Americans don't have this option.

CalSavers is the state's solution to closing this gap. Similar mandatory IRA-enrollment programs have been enacted in Connecticut, Maryland, Illinois, Oregon, and Seattle.

By June 30, 2020, California companies with more than 100 employees and no employer-sponsored retirement plan must be registered with CalSavers, which gives employees the option to choose their Roth IRA contribution rate — which is automatically deducted from their after-tax paycheck — opt out of saving entirely, or do nothing and be auto-enrolled to contribute 5% of their income. There's also an option to auto-increase the savings rate by 1% each year, until it reaches 8%.

The deadlines for companies with 50 or more employees and five or more employees are June 30, 2021 and June 30 2022, respectively. CalSavers estimates the program will reach more than 7 million Californians.

According to a UC Berkeley Labor Center study, the typical 25-year-old who participates in the CalSavers program will save enough to generate about $7,000 in annual retirement income. That more than likely won't cover the average person's post-retirement expenses, but it's a start.

The annual asset-based fee for Roth IRAs in the CalSavers program — which is managed by Ascensus College Savings Recordkeeping Services (ACSR) — is between 0.825% to 0.92%, depending on investment choice.

At the outset, employees can choose to invest their money in a capital preservation fund, a bond fund, a global equity fund, a Sustainable Balanced Fund (ESG), and a suite of target date funds. The first $1,000 in contributions for each member will be invested in a capital preservation option.

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