Navigating State IRA Programs: What Small Businesses Need to Know

If you're a small business owner, you've potentially been made aware of state IRA programs. Being based in the DC metro area, I'm intimately familiar with our local programs: Maryland$aves and RetirePath Virginia. The Center for Retirement Initiatives at Georgetown University states that in early 2025, there are 17 states with State IRA programs and approximately $2 billion dollars of money invested. As a small business owner, you may have received letters if you are in one of these states, about the need to enroll in the state program or set up your own retirement plan. You may be unsure of what steps to take next or what is a better decision for your organization.

 These state-run retirement initiatives aim to increase retirement savings among workers who don't currently have access to employer-sponsored retirement plans. While the goal behind these programs is commendable, it's essential for small business owners to fully understand both the advantages and potential drawbacks before deciding if participation, or exploring alternative solutions, is the best choice for your company.

 The Pros of Using State IRA Programs

•  Easy and Cost-Effective Implementation: Employers typically face little to no setup costs, there are only employee contributions to the account, and the administrative burden is minimal since the state manages most of the administrative tasks.

• Compliance Made Simple: These programs are often non-ERISA (Employee Retirement Income Security Act of 1964) supported, so there are few compliance requirements for the business owner.

• Boost Employee Financial Security: Offering employees an easy way to save for retirement helps promote their long-term financial well-being and positions your business as caring and employee-focused.

 The Cons to Consider

• Limited Employer Control: With state IRAs, your ability as an employer to tailor the retirement benefit to your employees' needs is limited. Investment options, plan features, and participant communication strategies are usually predetermined by the state.

• No Employer Contributions: Employers cannot offer matching contributions within these state IRA structures. As a result, small businesses miss out on a key incentive that can help attract and retain top talent.

• Lower Contribution Limits: State IRA programs typically operate as Roth IRAs with lower annual contribution limits ($7,000 in 2025, or $8,000 for employees age 50 and older). Additionally, Roth IRAs may have income limitations that may cause problems at tax time, if the employee is married and their total household income exceeds the threshold for participation.

 Exploring Non-State IRA Solutions

 If your goal is greater flexibility, higher contribution limits, and the ability to offer matching contributions, exploring alternative retirement plan solutions beyond state IRAs is advisable:

SEP or SIMPLE IRAs: For businesses looking for simplicity yet desiring higher contribution limits and the ability to match employee contributions, SEP IRAs and SIMPLE IRAs may be suitable solutions. These offer more flexibility and higher limits than state-run IRAs but still maintain simplicity and easy compliance considerations.

401(k) Plans: Traditional, or Safe Harbor, 401(k) plans allow significantly higher annual contributions, potentially limiting savings opportunities for employees who wish to contribute more.

Implementing a 401(k) provides maximum flexibility and customization, higher contribution limits (up to $23,500 plus employer matches in 2025), and options such as employer matching and profit-sharing contributions. Unlike a Roth IRA, employees also have the opportunity to manage their future tax circumstances with Pre-Tax or Roth Contribution options. Although these plans typically come with higher cost, and more compliance and administrative responsibilities, they can be customized to your organization. For mission-driven organizations, there is an opportunity to embed employee benefits in plan Working with an experienced Retirement Plan Advisor can streamline setup and ongoing management and offer fiduciary protections.

Pooled Employer Plans (PEPs): A PEP allows multiple small employers to join forces, sharing administrative and fiduciary responsibilities, which can significantly reduce the administrative burden and costs compared to a traditional standalone 401(k) plan.

Small businesses considering alternatives to state IRA programs should also be aware of valuable federal tax credits available under the SECURE & SECURE 2.0 Acts for starting up new retirement plan. Be sure to consult with a retirement plan professional to understand how these credits can significantly offset the costs of offering a plan

Choosing the Right Path Forward

Deciding whether to participate in a State IRA program or adopt an alternative retirement solution depends on your business. Your goals, your employees' needs, and your administrative comfort level. This isn't a right or wrong answer. Working closely with a trusted Retirement Plan Advisor can help you weigh these factors carefully, while providing knowledgeable experience in the retirement plan marketplace that exists, ensuring your retirement offering aligns with your company's objectives while meeting federal compliance requirements.

We specialize in guiding small businesses through these critical decisions in many of the 17 states with a current State IRA program. If you're evaluating your retirement plan options or have questions about navigating state IRA mandates in Maryland or Virginia, let's meet. If you're in any of the others, we can connect virtually. Together, we’ll find the retirement solution that’s best suited to your business and your valued employees. If you're interested in working with a Retirement Plan Advisor, reach out today at Christina.Tunison@lpl.com to learn how we can support your plan.

This information is not intended as authoritative guidance or tax or legal advice. You should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.

 #723744 Apr2025