Clark Howard Tuesday, January 19 th 2016
Saving money for retirement is easy if you work for a giant corporation. They have 401(k) plans that are generally pretty easy to enroll in and may be with low-cost providers. 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. If they do have one, the small business typically face massive expenses for offering such a plan to their employees.
So where can you turn to and what can you do? Fortunately, there are now organizations that offer retirement plans that are either free for employers or have very affordable costs. I’ve been reading and looking at these things and I’m excited by what’s going on.
Read more: Clark’s investment guide
A free option through the federal government
A third of American workers have zero saved for retirement. That’s not good. Thankfully, employers can now offer workers a totally free retirement plan through the U.S. Treasury. It’s called myRA.gov and 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 I think 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 option doesn’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.
Read more: How much you need to save to be a millionaire by age 65
The other player I’ve read about 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 1-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 player 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.