RetirePath VA: Virginia State-Sponsored Small Business Retirement Plan

RetirePath VA refers to Virginia's state-sponsored retirement plan targeted at small businesses that may not offer their own retirement solutions. It enables employees of participating small businesses to save for retirement through a simple, low-cost, and automated system. Contributions are made via payroll deductions into Roth IRAs, facilitating tax-free withdrawals in retirement. The plan aims to bridge the retirement savings gap for employees who lack access to employer-sponsored retirement plans.
Author: Penelope Team

RetirePath VA is a state-sponsored retirement savings program for eligible Virginia workers. Employees are automatically enrolled in a Roth IRA, but savers can choose to redirect their contributions to a traditional IRA.

Other states launched state-facilitated retirement savings programs before Virginia. They are Oregon (2017), Illinois (2018), California (2019), Connecticut (2021), Maryland (2022), and Colorado (2022). Find out more about state retirement plan mandates.

Many Virginians working in the private sector don’t have access to an employer-sponsored retirement savings plan. To help give these people a path to economic security, the state government created RetirePath Virginia.

How does RetirePath VA work?

RetirePath VA is a Roth Individual Retirement Account (IRA). Participating employees contribute to it via post-tax payroll deductions, which are automatically processed by their company. 

If you join a company that is enrolled in RetirePath VA, you will be automatically enrolled within the first 30 days, unless you opt-out. You can re-enroll and opt-out at any time.

The default contribution rate is 5%, but you can change it whenever you choose. Employees can contribute as much as they wish, up to the IRS limits (in 2024, that’s $7,000, and $8,000 for those over 50). If plan participants don’t make changes to their contribution limits, each year they will increase by 1%, until reaching 10%.

RetirePath Virginia does not offer an employer match — employers are not permitted or required to contribute. Employers also don’t have to pay fees to set up the plan, which makes it an affordable option for companies in Virginia.

Rollovers from a RetirePath account directly to another type of IRA are tax-free and not subject to penalties, as long as you stick to one transfer per year.  

What if my small business or nonprofit organization is already offering a retirement plan?

If your small business or nonprofit organization in Virginia is already offering a retirement plan, you are likely in compliance with the state's laws. A qualified plan includes any plan, contract, pension, or trust that results in a deferral of income by employees for periods extending to the termination of covered employment or beyond, whether the employer contributes to the plan or not. You can certify your existing plan with the state here.

However, it's important to ensure that your existing plan meets all the necessary legal requirements. Regular reviews of your retirement plan can help keep you compliant and up-to-date with any changes in regulations.

Which employees are eligible to participate in RetirePath VA?

RetirePath VA is open to employees who are 18 or older, work at least 30 hours per week, and earn taxable wages from a Virginia-based employer. Their modified adjusted gross income (MAGI) cannot exceed the IRS limits for contributing to a Roth IRA.

What are the benefits of RetirePath VA?

RetirePath VA can be a good option for small businesses, as they don’t have to match employee contributions and pay no fees. The administration is easy and integrates with payroll systems.

Employees can opt-out for other retirement plans, and it’s advisable to study all possible options before enrolling in RetirePath VA. 

Disadvantages of RetirePath VA for employees

While RetirePath VA is an affordable option for small business owners, it does have some disadvantages for employees:

  • Limited investment options, compared to other retirement plans
  • No employer match
  • The employee fees are considered high in the industry
  • Not eligible for tax credits through SECURE 2.0

Just as with other state-mandated retirement plans, RetirePath VA works if you don’t have a better option. As a small business or a nonprofit organization, it’s important to look at all possible alternatives and choose the best.

Retirement plans are used as a great “hook” by companies to attract and retain excellent employees and Penelope has a solid offer of 401(k) plans to choose from. 

Get a Better Alternative for the RetirePath Virginia Plan

With the fast-approaching deadline of February 15, 2024, it is important to avoid potential fines of $200 per employee per year for non-compliance. Penelope has two affordable retirement plan options for businesses of all sizes: The Safe Harbor 401(k) and the Starter 401(k). If you are looking to make employer contribution matches, then the Penelope Safe Harbor 401(k) Retirement Plan may be a better plan option for you.

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And remember, there are other retirement plans available, like Penelope's 401(k) plans, which you can build to the specific needs of your business. Schedule a complimentary call with our retirement specialists to get started.

Editor's Note: This blog was originally published on September 9, 2023, and has been updated for accuracy and comprehensiveness. 

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