A Business Owner’s Guide to the MD $aves Program
Siân Killingsworth / 3 Oct 2022 / 401(k) Resources
To help Maryland residents build their retirement savings, the state of Maryland is rolling out an initiative requiring all employers to offer some type of retirement plan for their workers. The deadlines for setting up a plan are rolling based on the size of the business. So what is this retirement program all about? Read on for easy answers to all your questions.
How does the Maryland $aves retirement savings program work?
Maryland $aves is a basic, automatic-enrollment, payroll deduction Roth IRA.
If your business opts into the state-provided IRA, after a 30-day grace period, eligible employees will automatically start saving for the future through a 5% contribution from their payroll. All participating employees will contribute a part of their salary into their IRA automatically from each paycheck.
Is the Maryland $aves program mandatory?
No, but if you do not sign up for any retirement plan at all, your small business will not save $300 annually on the report filing fee for those doing business in Maryland.
Is the Maryland $aves retirement savings program a Roth IRA?
Yes, the plan they are offering is a basic Roth IRA. This is an individual retirement account where the saver pays taxes on money going into their account, and (if the saver meets certain IRS criteria) all future withdrawals are tax-free. However, there are a few drawbacks:
- Limited ability to save: The total amount you can save each year into an IRA is $6,000. With a 401(k), you can save three times as much.
- Little tax savings. Because this money is contributed after-tax, it doesn’t lower your taxable income for the year the way a 401(k) does.
- Income limits: You can’t contribute to a Roth IRA at all if you make too much money. The income limit for singles in 2022 is $144,000.
What will the state-run plan cost my business?
There are no employer fees in the Maryland $aves program, but you are not allowed to make tax-deductible matching contributions as you could in a 401(k) plan. Also, any business that does not opt into this or any other retirement plan will not have their $300 waived annually for the report filing.
What are the benefits of enrolling in the state-run plan?
There are several advantages for companies to choose the Maryland IRA product including:
- No cost to the employer
- No fiduciary risk
- No investment management responsibilities
- $300 filing report annual waiver
What are the potential drawbacks of enrolling in Illinois’s state-provided option?
The access to workplace retirement savings plans offered by Maryland $aves is a big step forward in solving the looming retirement crisis. However, there are significant drawbacks when compared to alternative eligible 401(k) plans from a private provider like Ubiquity Retirement + Savings:
- The contribution limit for a 401(k) is more than three times higher than that of an IRA
Higher contribution rates allow savers to take advantage of the power of compound interest, meaning the more money that is saved, the more it can grow over time.
- Missing out on significant tax benefits
Did you know small businesses that sponsor retirement plans for their employees are rewarded by the government? Thanks to the SECURE Act of 2019, small businesses can qualify for up to $16,500 in tax credits over a three-year period by starting a qualified retirement plan, such as a 401(k) plan, with auto-enrollment. Employers choosing the state provided option are not eligible for these benefits.
- Employees will be charged asset-based fees
Currently, Maryland $aves charges an asset-based fee, so your employees are increasingly penalized based on how much they save. This plan has no option to select a flat-fee program, which would provide greater transparency and ultimately lower costs as savings accumulate.
Is the Maryland $aves IRA best for my business?
At Ubiquity Retirement + Savings, we’ve been helping small businesses and their employees grow their nest eggs for over two decades with affordable, customized 401(k) solutions. While we believe the state’s program is an important step toward ending the looming retirement crisis in Illinois, a 401(k) might be better alternative for your small business and your employees’ futures.
Can I opt out of Maryland $aves?
Yes. Businesses can offer a qualified retirement plan from a private provider, which could allow for more savings while providing tax incentives and greater customization.
Let’s see how the state mandate IRA stacks up against Ubiquity’s most popular small business savings plan:
Maryland $aves IRA Ubiquity 401(k) Maximum employee annual contribution amount $6,000 $20,500¹ Additional annual employer contribution limit Not offered Yes, up to an additional $40,500¹ Flat fees that don’t increase with your account balance No, asset-based fees Yes, flat fees Tax credit that can total up to $5,500 per year – or $16,500 for the first three years of the new 401(k) plan2 No Yes Flexible auto-enrollment and vesting schedules No Yes Investment guidance based on individual risk tolerance No Yes Employee enrollment meetings and education No Yes Auto-enrollment and escalation Required at mandated levels Optional and flexible Customizable investment lineups No Yes
Maryland $aves IRA
Maximum employee annual contribution amount
Additional annual employer contribution limit
Yes, up to an additional $40,500¹
Flat fees that don’t increase with your account balance
No, asset-based fees
Yes, flat fees
Tax credit that can total up to $5,500 per year – or $16,500 for the first three years of the new 401(k) plan2
Flexible auto-enrollment and vesting schedules
Investment guidance based on individual risk tolerance
Employee enrollment meetings and education
Auto-enrollment and escalation
Required at mandated levels
Optional and flexible
Customizable investment lineups
This limit is subject to cost-of-living increases for later years (for prior years, refer to this cost-of–living adjustment table.)
Available to eligible employers who have less than 100 employees who received at least $5,000 in compensation in the previous year, had at least one participant who was a non-highly compensated employee, and in the last 3-years did not contribute to a benefit plan for your employees through a plan sponsored by you or a member of a controlled group that includes you.
Choose the better path to savings with a Ubiquity 401(k)
If you’re looking for the maximum savings potential and tax benefit, Ubiquity provides customizable 401(k) plans that act as a Maryland $aves alternative. For over two decades we have pioneered flat-fee retirement plans, designed for small businesses, all delivered online to you and your employees. That means no hidden fees or AUM charges in the fine print. We have helped hundreds of thousands of employees save for their future.
The content of this blog is for informational purposes only. It should not be used as a substitute for specific tax, legal and/or financial advice that considers all relevant facts and circumstances. Be sure to consult a qualified financial adviser or tax professional for official guidance.