What Is an Automatic Step Up on Retirement Accounts?
Though not offered by all plans, employer-sponsored 401(k)s, 403(b)s, 457(b)s, SARSEPs and SIMPLE IRA plans can offer qualified automatic contribution arrangements--QACAs--which allow employees to contribute to their retirement plans with scheduled incremental increased contributions.
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Employee and Employer Contributions
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Under a QACA, employees can elect a 3 percent deferred contribution for the first year they contribute to the plan with an annual 1 percent increases, up to 6 percent, with a maximum deferral of 10 percent. Employers often match 100 percent of the deferrals for the first 1 percent plus 50 percent of any contributions from 1 to 6 percent.
Benefits
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In addition to mandatory employer contributions, automatically increased deferrals allow employees to accumulate assets at a faster pace without having to manually make contribution changes each year. In addition, many participants may also be eligible for the retirement saver's tax credit. Contact your tax adviser or the IRS for more information.
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Know Your Plan
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Investors should carefully review investment choices as well as the options available for discontinuing participation or changing a contribution amount. While all employers are required to provide employees with plan details 30 to 90 days before the beginning of each plan year, you should contact your plan sponsor for more details regarding your particular plan's rules.
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References
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