Understanding State Retirement Savings Programs

Retirement Planning

Published: April 25, 2023

If you’ve recently started thinking about planning for your retirement, you may find all of the information about types of retirement accounts online to be overwhelming. One option that many Americans will come across during their research and have questions about is State-sponsored retirement programs and how they might differ from conventional retirement saving options.

Keep reading to learn more about both options’ pros, cons, similarities, and differences.

What Are State Retirement Savings Programs?

State programs are retirement accounts sponsored by government agencies. These programs can be a valuable tool for those who want to save for retirement when an employer-sponsored plan isn’t available. They typically offer tax incentives to encourage individuals to save for retirement by allowing them to invest in stocks, bonds, and mutual funds.

How Do State Retirement Programs Work?

These programs are generally government-sponsored Roth IRAs in which employee contributions are deducted from after-tax income so that withdrawals are tax-free. The plans are typically administered through payroll deductions, and employees are automatically enrolled. However, employees can opt out or change the amount of their contributions.

State pension plans are for low- to moderate-income workers who work for small and medium-sized public companies that don’t offer pension plans. Employers are generally prohibited from making contributions, with some exceptions, such as Massachusetts, which allows safe-harbor contributions from employers.

Many programs offer incentives, such as supplemental contributions, where the state matches up to a certain percentage of contributions. For example, if you contribute 2% of your salary, the state will match that 2%. Although these plans typically have low maximum contribution limits, they’re still an effective way to save for retirement.

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Which States Offer Retirement Plans?

At the time of this writing, California, Colorado, Connecticut, Illinois, Maryland, Massachusetts, Oregon, and Washington offer pension plans.

Legislation has also been passed in Maine, New Jersey, New Mexico, Virginia, and Vermont to establish state retirement programs at the scheduled time. New York has also passed its own pension program. However, no date has yet been set for the program’s implementation.


California offers the CalSavers program, a retirement savings program designed to help Californians save for their future. The plan allows participants to open an IRA through a financial institution and make annual pre-tax contributions of up to $6,000. Participants can also make an employer contribution of up to 5% of their wages to the account.


Colorado offers the Colorado Secure Savings Program, which helps small businesses save for their employees’ retirement plans. Businesses with fewer than ten employees can participate in the program and set up accounts with no fees or minimum deposits required of participants.

Employees can decide how much they want to invest each month from their pre-tax paycheck and receive quarterly updates on their progress toward their retirement savings goals.


Connecticut’s MyCTSavings plan helps workers who don’t have access to traditional employer-provided retirement plans save for later life by offering them an alternative option that doesn’t require employer participation or cost the employer anything upfront. The plan is available through participating financial institutions and allows individuals to make annual contributions of up to $2,500 before taxes.


The Illinois Secure Choice program gives small business owners (with fewer than 25 employees) the opportunity to offer automatic payroll deductions at no cost or risk to their employees. This helps workers build assets for long-term retirement security.


The Maryland Small Business Retirement Savings Program allows small business owners to provide retirement savings for their employees through payroll deduction. The program is available to businesses in the state with five or fewer employees and encourages employers to contribute a matching amount to each employee’s retirement account.


The Massachusetts Defined Contribution Plan CORE is a low-cost option offered by the state that provides employers with an easy way to offer 401(k)-style benefits without having to administer them themselves. This plan is open to any employer in the state, regardless of size. It offers features such as automatic enrollment, automatic increases in contributions over time, and self-directed investment options for participants.


OregonSaves is Oregon’s automated retirement savings platform that allows workers who don’t have access to an employer-sponsored plan to save for retirement on their own terms.

Participating employers are required by Oregon law to enroll their eligible employees within 90 days of starting work. However, participation is voluntary for both employers and employees at any time.


The Washington Small Business Retirement Marketplace provides small business owners with access to multiple qualified plans tailored to their individual needs and those of their employees. All plans in this marketplace must meet certain criteria, such as portability between jobs, the ability to make up contributions as needed, and providing flexible withdrawal options when it is time for retirees to withdraw funds from these accounts.

Conventional Retirement Plans

Traditional retirement plans are traditional employer savings plans that offer contribution adjustments and tax incentives that encourage individuals to save for retirement. These plans allow you to invest in a variety of options, including stocks, bonds, and mutual funds.

The requirements for a conventional retirement plan depend on the plan and the employer. However, employees usually need to make regular contributions to enjoy the associated tax benefits, such as tax-deferred growth, which helps individuals save more efficiently. It is important to understand the features and protections of the plan to minimize potential risks.

These plans typically have higher contribution limits than state retirement plans, making them attractive for those looking for more flexibility and control over their retirement savings.

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Popular Conventional Retirement Plans

Conventional retirement plans can be an effective way to save for retirement. They offer a variety of investment options, tax benefits, and possible additional contributions from the employer. However, it’s important to understand the features and limitations of the plan before investing.

401(k) Accounts

401(k) plans are employer-sponsored retirement plans that allow employees to save money for their retirement before taxation. This means that money saved in the 401(k) plan isn’t counted against taxable income and is only taxed when withdrawn in retirement.

Employers can also match a certain percentage of an employee’s contributions, which can serve as an incentive for individuals to contribute more to their 401(k). Each investor’s risk tolerance and financial goals should be considered when selecting an appropriate option.

Investors should educate themselves on all available options to make informed decisions that will help them achieve their long-term financial goals.

403(b) Retirement Accounts

403(b) plans are tax-deferred retirement accounts similar to 401(k) plans. The main difference between the two is that 403(b) plans are generally offered to employees of public schools and certain nonprofit organizations, while 401(k) plans may be offered by private employers or through self-employed individuals.

Contributions to 403(b) plans are made with pre-tax income and grow tax-deferred until withdrawn at retirement, at which time they’re taxed as ordinary income. Employers may match contributions up to a certain percentage, but this isn’t mandatory, as may be the case with some 401(k) plans.

Individual Retirement Accounts

IRAs are a type of retirement plan that allows individuals to save for retirement on their own without employer participation. Traditional IRAs allow contributions and tax-deferred growth, but withdrawals are taxed as ordinary income. Roth IRAs are funded with after-tax funds and can be withdrawn tax-free in retirement.

SEP IRAs are expressly designed for self-employed individuals or small business owners who want to make larger contributions than are possible with traditional IRAs. SIMPLE IRA Plans are available to employers of all sizes and allow employers and employees to contribute funds to a retirement account before taxation.

SDIRAs (Self Directed Individual Retirement Accounts) give investors more control over their investments by allowing them to decide where to invest their money, aside from traditional options such as stocks, bonds, and mutual funds. With an SDIRA, investors can access alternative investments such as real estate investment trusts (REITs), limited partnerships (LPs), private equity, and precious metals like gold and silver. By diversifying across asset classes with SDIRAs, investors have the potential for higher returns, minimize the risk associated with a particular asset class, and provide tax-deferred growth potential.

Each type of IRA has its own contribution limits and withdrawal restrictions. It’s important for individuals to thoroughly research each option before choosing the best plan for them.

Conventional Retirement Plans vs. State Retirement Savings Programs

Traditional pension plans and government retirement savings programs offer tax incentives to encourage individuals to save for retirement, but there are important differences between them.

Benefits Of Conventional Retirement Plans

Traditional retirement plans have been around for decades. They allow individuals to save and plan for retirement and offer several benefits, including:

  • They also provide access to professional financial advisors who can help you make informed decisions about your portfolio.
  • Many employers match employee contributions to their retirement plans. This is an added incentive to save for retirement that government retirement savings programs generally do not offer.
  • Traditional retirement plans generally have higher contribution limits than government-sponsored plans. Depending on your age and income level, these limits can be as much as a multiple of what a government program offers.
  • With traditional plans, you receive tax benefits such as tax-deferred growth, which means any earnings or gains earned on the account are not subject to tax until withdrawn later.

Benefits Of State Retirement Savings Programs

Government retirement plans are a great way to save for retirement and offer several benefits that you would not get with other retirement plans. Some of these benefits include:

  • State retirement savings programs are becoming increasingly popular due to their low contribution requirements compared to traditional retirement plans. These programs typically require individuals to contribute a certain amount each month, although the exact amount varies by state and type of plan.
  • Many states offer tax incentives or supplemental contributions to encourage participation in these programs and increase your savings potential. They are also exempt from federal income tax, which provides further tax benefits that can help your money grow even faster.
  • State retirement programs typically have lower fees and costs than traditional alternatives, making them more attractive to those who want to save for the future. Most of these programs charge a small fee yearly to cover administrative costs, but it is usually far less than what you would pay with other plans.
  • Government retirement savings programs offer the security of government-guaranteed protection against market losses. Your investments are safe if the stock market suffers a downturn or disaster because they are generally insulated from such events.
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Retirement Planning