In 1974 Congress started to allow individuals to open retirement savings accounts (or IRAs, for short).  The original purpose of an IRA was to give individuals who were not covered by a work-related retirement plan the ability to save for retirement on a tax-deferred basis.  At that time, individuals were able to contribute up to $1,500 to their IRA while the median household income was $9,921 per year (in nominal terms).  IRAs were, at that time, a sensible way to save for retirement.

From 1974 until the mid-1980s, IRAs continued to be a popular savings vehicle for retirement. During that period, many businesses offered payroll deduction IRAs so employees could save for retirement directly from their paycheck.  But with the rise of the 401(k) plan, many businesses stopped offering payroll deduction IRAs.

Many headlines today proclaim that America is in the midst of a looming retirement crisis.  A primary cause of this is that up to one-half of the nation’s private employers do not offer a retirement plan to their employees.  Many studies have shown that if people do not have the ability to save for retirement through work, the likelihood of them saving for retirement at all drops dramatically.

In light of that, politicians are scrambling to find a solution to help employees save for retirement. More than a dozen states, as noted, are trying to implement retirement savings programs for private employees, while President Obama has proposed the MyIRA.

But we think that the solution of saving for retirement is – as it has been all along – right before our eyes:  payroll deduction IRAs – once popular but nearly forgotten – offer a simple and low cost solution for employers to help their employees save for retirement.

What about the numbers?  In a recent study commissioned by the State of California, the median annual income for people who do not have a retirement plan at work is just under $26,000.  The IRS savings limit on an IRA is $5,500 per year for 2014 (plus $1,000 for those who turn 50 anytime during the year). This shows that, forty years after its introduction, a payroll deduction IRA is still a great – and yes, a very respectable – way to save for retirement.  If the late, great Rodney Dangerfield were with us today, he would no doubt be the perfect spokesman for the payroll deduction IRA!

FIND OUT MORE ABOUT A PAYROLL DEDUCTION IRA – FIND OUT ABOUT MYworkIRA (link to form submitting information)

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Many well-meaning people are trying to solve these problems with various solutions.  At the federal level, President Obama ushered forth his MyRA solution. But the real action these days is taking place at the state level with no less than twelve states attempting to implement a savings program for private sector employees.

The article in the Washington Post summarizes this movement: “There’s a more simple idea, though: Just roll them all into one gigantic savings plan. That’s it, one step, no hassle, done.”

It certainly would be nice if it were that simple but the proposals at the state level are anything but that. Some might take that as a knock, but can anyone name a large state program that is simple, easy and can be achieved in just one step?

We do think that government actually solved the issue of retirement savings coverage a long time ago but then forgot about that solution. Before the rise of the 401(k) plan, payroll deduction IRAs were a popular savings vehicle in America because they were a simple and easy program for employers and their employees. But somewhere along the way, the 401(k) plan supplanted payroll deduction IRAs as the most popular retirement savings program.

Anyone who has operated or sponsored a 401(k) plan, however, knows that they can be complicated and costly to maintain.  And did we mention employer fiduciary responsibility attaches to 401(k) plans?  It is no wonder that approximately half of the businesses in the United States do not offer one.

In fact, the long-forgotten payroll deduction program that preceded the 401(k) plan may be the simplest and most cost effective way for employees to save for retirement.

As the article in the Washington Post points out, the idea of an Obamacare for retirement savings is a tough one to swallow now.  But we don’t think any employer needs to take that medicine to help their employees save for retirement.  There is a much simpler way to do it now, and you don’t have to wait for state governments to launch their programs.  It’s called MYworkIRA!

FIND OUT MORE ABOUT A PAYROLL DEDUCTION IRA – FIND OUT ABOUT MYworkIRA (link to form asking for more information)

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