Buzzword: Automatic IRA

The Automatic Individual Retirement Account is a concept that’s been kicking around for a few years and may actually happen now that it’s included in both President Obama’s 2010 budget and the Treasury Department's Financial Regulatory Reform proposals released earlier this week. Basically, the Automatic IRA would make a mini 401(k)-like retirement plan available to millions of American workers who currently aren’t covered.

The law would apply to employers with 10 or more workers, that have been in business for at least two years, and that don't currently offer a retirement plan. They would be required to enroll their employees in an IRA and fund it through regular payroll deductions.

Employees would be allowed to opt out. But to lessen that possibility and encourage participation, the proposal would also modify the current saver’s credit for workers with modest incomes by making it “refundable.” That means participating workers could receive a credit, deposited into the automatic IRA, even if they owed less than that amount in taxes. We'll report on this in greater detail if it comes to pass. Meanwhile, more about the saver’s credit and how it currently works here. —Greg Daugherty

Greg writes the “Retirement Guy” column each month in the Consumer Reports Money Adviser newsletter.

Comments

[money20]

new zealand has started this auto retirement saving system last year i think. in malaysia they make it compulsory for each worker to deposit around 10% of monthly income into a retirement fund they called employee provident fund. know what, by this fund malaysia now is among the country that has the highest saving rate in the world. the good thing is every worker that retires already has a sum of money in the retirement fund.

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