MarylandSaves Retirement Savings Program

What is MarylandSaves?

Not all small business owners are able to afford retirement savings plans for their employees. In fact, some research shows that less than about 40% of individuals working at small companies have retirement savings plans. In recent years, states have begun to build out their own programs so small business owners can provide their employees with a way to save for retirement. 

In September 2022, the state of Maryland launched MarylandSaves to provide retirement and savings programs for Maryland business owners and their employees based on a bill passed in 2016. The idea was to help make saving toward retirement both cost-effective and easy at privately held companies, whose owners may otherwise struggle to afford to provide a retirement benefit. 

Businesses with at least one employee working on a W2 and using an automatic payroll system are legally required to provide their employees with a retirement savings plan or enroll in the MarylandSaves Roth Individual Retirement Account (Roth IRA). 

How does MarylandSaves work?

Employers automatically enroll their employees in a MarylandSaves Roth IRA, also called the MarylandSaves WorkLife Savings Account, unless the employee chooses to opt out. Employer’s place 5% of an employee’s post-tax income per pay period in the account. Every year, that contribution will increase by one percent, until the total contribution per pay period has reached 10% of your take-home pay per paycheck. The plan allows employees to use post-tax dollars to save toward retirement, up to $6,500 per year. Once that contribution limit is reached, automatic payments into the account stop. 

Enrollment

Enrollment in MarylandSaves is automatic for newly hired employees at eligible businesses. While an employee may opt out at any time, the process to set up an account takes less than 15 minutes, requiring some basic information. Here’s what you’ll need to enroll:

• Name
• Home address
• Social security number
• Date of birth

Individuals 18 years and older without an employer may also sign up for MarylandSaves using the same basic information, so long as they can make an initial deposit of $500 or a minimum recurring deposit of $5. 

Contributions

The easiest way to contribute to the MarylandSaves Roth IRA is through automatic deduction each pay period, though checks and bank account transfers work, too. Some important things to remember about Roth IRA contributions are:

• Roth IRA contributions are not tax-deductible. 
• Contributions must be made before the date you file your taxes for the year (on or before April 15). 
• There are federally mandated contribution limits associated with Roth IRAs. In 2023, contributions may not exceed $6,500 for the year for a Roth IRA, unless you’re older than 50, in which case the annual limit is $7,500. 

Investments

The investment options for the MarylandSaves Roth IRA, and really any Roth IRA, could be a mix of S&P index funds, dividend stock funds, real estate investment trusts (REITs), target-date funds, among others that you choose. The point is to set it and forget it, allowing the account to grow over time so it’s ready for you when you need it at retirement. 

If you don’t make selections on your own, your investment will go to two different funds:

• Emergency Investment Fund
  • The first $1,000 deposited into your account will go toward the MarylandSaves Emergency Investment Fund. 
  • This fund is 100% invested in the Guaranteed Investment Contract issued by The Lincoln National Life Insurance Company. Employees can also choose to invest beyond the default $1,000 emergency savings amount, too. There is no additional fee for this fund.
• Target Retirement Date Investment Fund
  • Investments beyond that first $1,000 will then automatically be aligned with your target retirement date. Those target retirement date options are 100% invested in BlackRock Retirement Funds. There is a 9-cent fee per $100 invested. 
  • For example, if you turn 65 in 2033, your money will be earmarked for the MarylandSaves Target Retirement 2035 Investment Option. If you will be 65 in 2049, your account will sync with the Target Retirement 2050 Investment Option. 

At any time, you may opt out of automatic investments and choose your own.  

Withdrawals

You may withdraw money from your account at any time. Your withdrawal could be taxed if they aren’t considered qualified by the program, so it’s important to check with the program administrator before you take money out. 

If you’re younger than 59.5 years old, and you withdraw from your account early at an amount beyond what you’ve contributed, you may be subject to a 10% tax rate. Withdrawals made prior to 59.5 years old that are equal to your contributions are not taxed. 

The goal with a Roth IRA is that you put money in the account and do not touch it again until you’re ready for retirement.  

Transfers

You can move the money from your Roth IRA into another IRA account you own without paying a penalty or taxes, so long as the transfer happens between the accounts you own. The IRS allows for one rollover in both Roth IRA and traditional IRA accounts in a 12-month period. 

Administrative fees

Signing up for MarylandSaves is free for employees. The state of Maryland requires companies to pay a $300 annual report filing fee. That fee is waived for companies enrolled in MarylandSaves, as well as businesses who opt out and can otherwise certify that they already offer their employees an approved retirement plan. 

Which employers need to register and when?

Companies that have been in business for at least two calendar years, have at least one employee on a W-2, and use an automated payroll system are eligible for MarylandSaves. 

Which employees are eligible to participate in MarylandSaves?

W-2 employees working for an eligible business in Maryland will automatically be enrolled unless they opt out. There is no cost to employees to enroll and no penalty for opting out. 

What are the benefits of MarylandSaves?

The benefit of MarylandSaves is ease of use. Business owners simply need to enroll, upload their company’s payroll and employee information, and keep it up to date as time goes on and the company grows. The program is free. 

How do businesses register for MarylandSaves?

Business owners can apply for MarylandSaves using their State Department of Assessments and Taxation (SDAT) number and an access code provided by MarylandSaves. Look up your SDAT numbers here and access codes are available upon request from MarylandSaves. 

How does MarylandSaves compare to other retirement plans?

MarylandSaves was built with small businesses and nonprofits in mind. Often, those organizations can’t match employee contributions or afford the fees involved with offering a traditional retirement plan. Those can be barriers to offering any plan at all. MarylandSaves helps employers offer their staff a way to save without the hurdles of fees, contribution matching, or extra costs. 

One difference between the two accounts is contribution limits. Because MarylandSaves is an IRA, it does not allow employees to contribute as they could with a 401(k). In 2023, the contribution limit for a 401(k) is $22,500, while the limit to contribute to an IRA is much lower at $6,500. 

FAQ

MarylandSaves mandatory for employers?

No. While certain businesses in Maryland are required to offer a retirement savings option for employees, they aren’t required to use MarylandSaves. Companies that fall under this category must:

• Have been operating for at least two calendar years
• Have at least one employee working on a W-2
• Use an automated payroll system

How do I opt out of the MarylandSaves program?

Employees can opt out at any time. Just call, email, or fill out this form. If you do so before your 30-day employment window, no deductions will be made from your paycheck and your account won’t be activated at all. If you opt out after the 30-day mark, the company you work for will be notified to stop pulling money from your paycheck and any deductions that have been made will be withdrawn and returned to you. 

Does the state of Maryland match 401(k) contributions?

No, there is no contribution matching involved in the MarylandSaves Roth IRA.  If you have any questions, feel free to schedule an appointment with our retirement planning experts and start your employees on the right track for retirement saving.