What is Colorado SecureSavings?
More than 900,000 (40%) Colorado residents who work for privately held companies do not have an employer-sponsored retirement savings plan. Traditional retirement savings plans often involve high costs that make it difficult for small business owners to provide them to their employees. In an effort to increase the number of people with retirement savings across the state, the Office of the State Treasurer created Colorado SecureSavings, run by the Colorado SecureSavings Board. It was launched in October 2022 on the basis of a 2020 state law requiring certain business owners to offer employees an affordable, seamless way to save for retirement.
Businesses that have been in operation for two years or longer, have five or more employees with at least 180 days in employment, and don’t already offer a retirement savings plan are automatically enrolled in Colorado SecureSavings. Through the program, employees may make direct deposits from their post-tax paychecks into individual Roth IRA savings accounts.
How does Colorado SecureSavings work?
Employees, unless they choose to opt-out, will be auto-enrolled in the Colorado SecureSavings Roth IRA retirement savings plan after 30 days of employment. At that point, 5% of their post-tax gross pay will be automatically deposited into the Roth IRA up to $6,500 per year per IRS rules. They may choose to stick with default investment options, or choose from a few different plans including: the Capital Preservation Option, the Target Retirement Date Option (based on the date you turn 65), the Bond Index Option, or the International Equity Option.
Colorado SecureSavings is linked to a similar program in neighboring New Mexico, called the New Mexico Work and Save Act, which was formed in 2020. The two programs work in partnership to help reduce fees and allow employees to see benefits as they work and live across state lines.
Employees will automatically be enrolled in the Colorado SecureSavings Roth IRA after 30 days of employment unless they opt-out. In addition, individuals who are self-employed or work for an employer that isn't registered for Colorado SecureSavings may also set up an individual account. Setting up an account is fairly simple with just some basic information:
- Social Security Number
- Date of birth
- Residential address
Once enrolled in Colorado SecureSavings Roth IRA, you may choose to leave your contributions in a default Capital Preservation Option for the first 30 days, or you can immediately choose your own investment plan. If you do nothing, after 30 days, you’ll automatically roll into the Target Retirement Date Option (based on the date you turn 65). You may also choose to put your investments in, the Bond Index Option or the International Equity Option. Here’s how the plans break down:
- Capital Preservation: a cash-like fund that places your investment in money market securities.
- Target Retirement Date: a mix of stocks and bonds created with the intention of maturation around the time you’re ready for retirement.
- Bond Index: a conservative fund invested entirely in bonds.
- International Equity: with the most risk of these four options, this is best for long-term investors with at least 10 years before they’ll need to access their money.
After the first six months of enrollment, your contribution rate to your Colorado SecureSavings Roth IRA will increase by 1% every January until your contribution rate reaches 8%. In any given year, you may also choose not to increase your contribution rate.
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 two accounts you own. In a 12-month period, the IRS allows for one rollover in both Roth IRA and traditional IRA accounts.
While you may withdraw money from your Roth IRA at any time, the goal with this type of account is to contribute and not touch it again until you’re ready for retirement.
Sometimes there is a case to make a withdrawal and it is important to know the related parameters. 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.
While employers pay no fees for the program, there are some fees that employees incur to cover the cost of administration and operating expenses of the underlying investment funds. The program has an annual asset-based fee of approximately 0.32%. In other words, you’ll pay $0.32 for every $100 in your account. Additionally, the program charges a $22 account fee every year, which is charged to you quarterly at $5.50 per quarter.
Which employers need to register and when?
Businesses with the following criteria are eligible for and automatically enrolled in Colorado SecureSavings:
- Have been in operation for two years or longer
- With five or more employees with at least 180 days of employment
- That don’t already offer a retirement savings plan
Which employees are eligible to participate in Colorado SecureSavings?
All employees at least 18 years old who have earned income from a Colorado business for at least 180 days are eligible for a Roth IRA through Colorado SecureSavings.
What are the benefits of Colorado SecureSavings?
Colorado SecureSavings offers a way for business owners to help their employees save toward retirement without high barriers to entry. The program also works alongside most payroll providers, allowing business owners to help their employees
How do businesses register for Colorado SecureSavings?
Business owners will be contacted for enrollment in Colorado SecureSavings if they’ve been in operation for at least two years, have five or more employees, and do not already offer a qualified retirement savings plan. In order to enroll, business owners will need a Federal Employer Identification Number (EIN) and an access code provided by Colorado SecureSavings. Business owners can request an access code at any time.
How does Colorado SecureSavings compare to other retirement plans?
Colorado SecureSavings was designed to help business owners create a way for employees to save long-term for retirement. Often, small businesses can’t match employee contributions or afford the fees involved with offering a traditional retirement plan. These costs can be barriers to offering any plan at all. Colorado SecureSavings eliminates the hurdles of steep fees, contribution matching, or extra costs.
One difference between the two accounts is contribution limits. Because Colorado SecureSavings is an IRA, it works differently than 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.
Is Colorado SecureSavings required?
No. According to state law, employers in the state are required to offer employees some sort of retirement savings plan. That could come in the form of Colorado SecureSavings, a traditional pension, a 401(k) plan, a 403(b) plan, a SEP Plan, a SIMPLE IRA plan, or a governmental deferred compensation plan.
Can I opt out of the Colorado SecureSavings Program?
Yes. You can opt-out at any time so long as you can show that your company offers a qualified retirement savings plan.
Does Colorado tax Social Security or pensions?
Colorado allows qualifying taxpayers to file a deduction on their taxes for pension and annuity income. Individuals 55 and older are allowed a $20,000 deduction, while those 65 and older q qualify for a $24,000 deduction.