Automatic IRAs for Small Employers
According to reports from the Wall Street Journal, lawmakers are pushing to create "automatic" Individual Retirement Accounts (IRAs), which would require employers that don't offer a retirement-savings plan to automatically deduct a portion of full-time employee's paychecks and deposit it into IRAs under the employee's name. Two bills have been introduced in the House and Senate that support the plan.
Only federal, state and local government, churches and church associations would be exempt from the rules. Employers with fewer than 10 employees paid $5,000 or more in the past calendar year, and employers under two years old that had 100 or fewer employees paid $5,000 or more would also be exempt.
Groups such as the AARP support both bills, saying the IRAs would greatly boost retirement savings among those that don't currently save at all. A report done by the retiree group found that a "$1,000 annual savings into an automatic IRA with a modest 4 percent annual return would create $31,000 after 20 years and $58,300 after 30 years."
According to the article, "Some critics of Automatic IRAs worry they would deter small businesses from setting up their own, more-generous retirement plans by giving them an easier way to just direct employees' money into IRAs. The AARP report also found that the cost of administering automatic IRA withdrawals could be considerable to employers, especially small ones. The bills suggest giving employers a tax credit to help defray the costs, but the report says that many small employers don't face annual tax bills and so wouldn't reap benefits of a credit."
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