Retirement Coverage Gap: Many Unknowns Surrounding a National Retirement Savings Program

Retirement coverage gap is widening in the US, posing a challenge to all workers, pushing retirement age further and threatening the American dream. To address this challenge, the federal government has been pushing for a national retirement saving program to provide options to those who lack access to traditional retirement plans. This will address self-employed professionals, small business owners, and freelancers.

In theory, this will make it easier for Americans to start saving for their retirement and enjoy tax benefits while doing so. However, there are many unknowns regarding the proposal. For one, the national savings program is state-run. That means such program may not be subject to the Employee Retirement Income Security Act of 1974 (ERISA), just like other plans for federal and state employees. The state-run retirement plans, therefore, may not have the full protection of ERISA legislation.

Another point of concern is the investment choice, which is said to be restricted to government savings bonds only. Having a bond-only portfolio is often not recommended. The return, while more secure than others, offers little protection against inflation. Plus, the federal government runs the program, presenting a conflict of interest.

While a national retirement savings program can help provide easy access to all workers, there are still many issues to iron out. The good news is, Americans have other options to take matters in their hands and to start saving immediately.

Workers who do not have access to a traditional 401k plan through their employment can set up an IRA account. Even those who already have a 401k can contribute to an IRA. The account is designed for individuals, hence, it offers more flexibility, such as a wider selections of investments and the Roth option. As long as the plan participant has earned income, he or she will be able to set up an IRA. It’s an easy way to set up a tax-deferral fund to save for retirement. There is one minor drawback: the maximum annual contribution to an IRA is limited to $5,500. There is also an income limit to Roth IRA contributions.

Small business owners or self employed workers also have another option. If a person can show self employed business activity without hiring any full-time employee, he or she is eligible for a Solo 401k plan. The Solo 401k contribution limit is much higher than a traditional IRA, reaching up to $53,000 per year as of 2016. With a self directed Solo 401k, plan participants can also take control of their investments and choose to put their retirement money in real estate, private businesses, and others.

While the government’s initiatives to encourage retirement saving are much welcomed, they are still in the proposal stage. Meanwhile, Americans are recommended to start saving for retirement as early as they can, using the flexible options available to them.

Sense Financial is California's leading provider of retirement accounts with "Checkbook Control": the Solo 401k and the Checkbook IRA. Over the years, they have assisted hundreds of clients to obtain checkbook control over their retirement accounts while providing them with the ability to invest in virtually any investment class, including real estate, private lending, mortgage notes and much more without the need for custodian approval.

To learn more about Solo 401k, please visit sensefinancial.com.