Most Washington businesses without an employer-sponsored retirement plan must register for WA Saves, starting July 1, 2027, the state’s new retirement savings program. WA Saves aims to help employees build financial security by requiring businesses to offer payroll-deducted Roth IRAs managed through the state. While beneficial for workers, the program raises concerns for employers, particularly small businesses.
What WA Saves Means for Employees
For employees, WA Saves provides an accessible and automatic way to save for retirement, even if they change jobs. Contributions go into individual accounts, offering portability and flexibility. Many see this as a step forward in addressing the country’s retirement savings crisis.
The Employer’s Perspective
For businesses, WA Saves adds administrative responsibilities, including managing payroll deductions and coordinating with the state. Employers are not required to contribute to employee accounts, but they must help with administrative and compliance burdens. This shift has sparked mixed reactions from the business community.
One significant and seemingly unintended consequence of WA Saves is the potential loss of $100,000 to $200,000 in tax credits that businesses could have earned by voluntarily setting up their own retirement plans. These credits, part of federal incentives under the SECURE Act 2.0, encourage small businesses to implement 401(k) plans and offset costs. By defaulting to WA Saves, businesses will miss out on these federal benefits.
While employees will be automatically opted in to WA Saves the business owner will not be able to contribute towards their own retirement. In fact, if the business owner or any high-income earning employees are accidentally opted in it could cause significant tax penalties for all involved.
Why Proactive Employers Should Consider a 401(k)
Employers who prefer to maintain control and customize retirement options for their staff can still establish a 401(k) or similar plan. Setting up a 401(k), however, is a detailed process requiring time and planning. It involves selecting a provider, determining investment options, establishing a vesting schedule, and ensuring compliance with federal regulations. Waiting until the last minute could lead to rushed decisions, administrative headaches, and missed deadlines.
Additionally, the federal tax credits available under SECURE Act 2.0 provide a compelling opportunity for business owners to reduce their tax burden by establishing their own retirement plan. However, waiting until WA Saves takes effect may forfeit their eligibility for these valuable credits.
Preparing for WA Saves
To comply with WA Saves, employers can:
- Evaluate Current Options: Assess whether a 401(k) or another plan makes sense for their business.
- Plan Ahead: Consult with financial professionals to explore retirement plan options and understand compliance requirements.
- Act Early: Avoid scrambling by starting the process now.
WA Saves represents a significant shift in retirement savings policy for Washington businesses. While the program provides a valuable benefit to employees, employers should weigh their options carefully to determine the best path forward for their business and staff.
Find out more about WA Saves at www.deepcreekfinancialplanning.com/wa-saves-act/ or calculate your potential tax credits at www.deepcreekfinancialplanning.com/tax-calculator/.
Originally published in another format at www.deepcreekfinancialplanning.com/wa-saves-act/ and used with permission.
Securities and advisory services are offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC. This article is for informational purposes only and should not be considered financial or legal advice. Employers and business owners are encouraged to consult with a qualified professional to determine the best course of action for their specific circumstances. Eligibility for federal tax credits under SECURE Act 2.0 depends on meeting specific criteria outlined by the IRS. Employers should consult with a tax advisor or legal professional to confirm their eligibility. The details of WA Saves and related federal tax laws are subject to change. Employers should stay informed of updates or amendments to ensure compliance and maximize opportunities. Establishing a retirement plan and participating in WA Saves do not guarantee specific tax savings or financial outcomes. Results may vary based on individual circumstances.”
