Get Ready for the Auto IRA
Get ready, Washington is about to take another stab at finance. As part of a new push to get more Americans to save for retirement, Congress will take on a bill next month to create government sponsored IRAs. The details are still thin, but if the program works as expected, it looks to be a generally good idea. This is, of course, coming from someone who is usually against this type of behavior from Washington DC.
How Will the Auto IRA Work
All employers who have been in business at least two years and have greater than 10 employees will be required to produce an auto-IRA program if they have yet to offer any other kind of retirement planning program. The Auto-IRA could be fed into both ROTH and traditional IRAs.
From what I’ve read, at the bare minimum you’ll have to invest at least 3% of your pay should you choose to enter into the Auto-IRA. Keep in mind, this IRA is optional, you do not have to open one, but if you do, you will have to contribute at least 3% of your income. Also, the maximum contributions will remain the same, and you won’t be able to save more than is currently allowed for IRA contributions.
Will I Get an IRA Contribution Match?
Your employer does not have to match your contributions as most chose to do with 401ks. The Auto IRA is just like an IRA you could set up for yourself. The only reason it is called an Auto IRA is that you’ll automatically have the option to open an IRA at any business older than 2 years with more than 10 employees. Again, you do not have to invest. Also, this account, much like 401k programs, is entirely your money and can be moved from one employer to another. Cha-Ching!
Benefits of the Auto IRA
Even the laziest of Americans will have the option to open an IRA and start saving and eliminating what are relatively small barriers to entry will cost just $200 million in the first year (federal government budget numbers) and $1 billion to keep it running. Not a bad deal.
Currently only half of the workforce of 150 million Americans have access to a retirement plan at their current job. Most of these people are considered to be low income, and the budget notes that the Auto IRA would help 80% of low income workers save for the future. Sadly, only about 15% do so now.
