For the past few years, the ground has constantly shifted under employers’ feet. There have been new regulations regarding retirement benefits and employee classification, and The Great Resignation has permanently altered workplace culture and what employees expect from the companies they work for.

Regardless of whether you were ahead of the curve or are currently playing catch-up, one thing is clear: doing things the same way as they were done before isn’t going to cut it. Not in the present environment and in the future.

So how do you come up with a benefits solution that meets the current moment and future-proofs your company from changes that are to come? You offer your employees a payroll IRA like Icon.

What is an IRA?

IRA stands for Individual Retirement Arrangement (or Account) and it is a tax-advantaged retirement savings account. There are two types of IRAs: traditional and roth. Traditional IRAs function similarly to a 401k in that contributions are tax-deductible in year they’re made, the  deposits can be used to purchase a wide range of investments and once the retiree begins to take disbursements from their IRA, they pay the appropriate income taxes on the withdrawn amount. 

Roth IRAs function a little differently. First, in order to contribute to a Roth IRA, you must satisfy certain income requirements depending on how you file your taxes. Second, contributions to Roth IRAs are not tax deductible in the year they’re made, but once you begin to withdraw them in retirement, you won’t pay income taxes on that money.

All contributions to retirement savings accounts grow tax-free.

401k vs. IRA

As we said above, there are some similarities between these two accounts:

  • Contributions are tax-deductible the year they’re made (traditional IRA only).
  • Contributions can be automatically withdrawn from the plan participant’s paycheck and deposited into the account.
  • Contributions grow tax-free.
  • Disbursements from these accounts in retirement are subject to the appropriate income tax (traditional IRA only).
  • Theoretically, owners of these types of accounts have access to the same investments. 

Here are the differences:

401kIcon IRA
Who’s Eligible?W-2 Employees All Employees
Access to Investments?Limited by CompanyAccess to Everything
Fiduciary Responsibility?Employer MaintainsIcon Maintains
Filing Requirements?Form 5500None
Discrimination Testing? Required AnnuallyNone
Annual Contribution Limit? $20,500 (2022)$6,000 (2022)
Catch-Up Contributions for 50+$6,500$1,000
Employer Matching AllowedYesNo

How Offering an IRA can Help Future-Proof Your Company

First, staying compliant. In 2019, California passed legislation (AB 5) that expanded its definition of what an “employee” was vs. an independent contractor. This, combined with the state’s retirement plan mandate has forced many California businesses from small start-ups to large, publicly traded companies to rethink how they manage their relationship with their employees without running afoul of employment law. 

California isn’t alone in passing a retirement savings mandate– 14 other states either have passed, or are considering, similar legislation and the U.S. Senate is currently reviewing a bill the House of Representatives passed last year that would federally expand the definition of “employee”. 

If you offer employees a 401k, you will need to stay abreast of who is legally considered an employee (might be different for state vs. federal), to make sure you’re in compliance with employment law (and not opening yourself up to expensive lawsuits). Or, you could offer employees an Icon IRA. Our plan can be offered to all employees (W-2, 1099, full-time or part-time) and it complies with all state retirement savings mandates so you’re covered in the case the legal landscape changes under your feet. 

Second, retaining talent. It’s no secret that many companies rely on independent contractors. It was published recently that even Google retains more independent contractors than actual employees. And startups, especially those that are pre-profit rely on independent contractors in order to grow and innovate. 

But independent contractors are often functioning like employees– working alongside actual employees for the same number of hours (or more) and subject to the same performance standards and oversight. They just don’t receive the benefits. If you are like the many companies that rely heavily on your independent contractors, offering them an Icon retirement savings plan can help them feel valued and a part of the company. Which will make it harder for another employer to poach them.

Even your full time employees who are eligible for a 401k will benefit from an Icon retirement savings plan. Our plans are portable, so they never lose access to their account, they can choose from 100’s of investments, our app makes plan management easy, and our low, flat fee makes it easier for them to grow their savings faster.

If you’re looking for a way to future-proof your benefits package, consider an Icon IRA. It’s the most cost-effective way to offer a retirement savings plan that complies with all major state mandates and doesn’t send you scrambling when employee classifications change.

Interested in learning more about the smart 401k alternative?

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