CalSavers vs. 401(k): Which retirement plan is right for you?
Calling all California business owners with at least one W-2 employee. Did you know that by December 31, 2025, all Golden State employers will have to offer a qualified retirement benefit?
That’s because of the California State Retirement Mandate (CalSavers) — which was designed to ensure that every California employee has access to retirement savings. Now the question is: to become compliant, should you go with California’s state-sponsored Roth IRA or an alternative, like a 401(k)?
While the CalSavers program is free for employers and a workable way to become compliant, we believe it isn’t ideal for attracting talent or for a growing business that may have to rethink their benefits in the near future. At first glance, it might seem like the easiest way to stay compliant. But it comes with real limitations: you can’t match your employees’ contributions, the savings limits are lower, and you’ll be stuck with more manual work every payroll period. Your team pays higher fees1 and you miss out on tax credits — all for a plan that doesn’t give you much room to offer features like employer matching or higher contribution limits down the road.2
Fortunately, there are other strong retirement plan options to choose from. If you’re debating between the CalSavers Retirement Savings Program and a standard 401(k), Guideline can help you make a more informed, confident decision.
Keep reading for all the key details.
Give your employees a roadmap to retirement
With Guideline, you can provide an impactful work benefit while minimizing paper work and fees
Understanding the basics: What is the CalSavers mandate and how does the savings program work?
In 2019, California passed the CalSavers Retirement Savings Trust Act to make sure all Golden State employees have access to an employer-sponsored retirement plan. This law is what many people refer to as the “mandate” because it requires employers with a certain number of employees to provide a retirement option to their employees.
In order to help businesses offer a retirement savings benefit, the law also introduced the CalSavers Retirement Savings Program — also known as CalSavers. This program is a state-run Roth IRA for employers that don’t already offer a qualified retirement plan like a 401(k) or SIMPLE IRA.
If you have at least one employee and no qualifying retirement plan by December 31, 2025, you’re mandated by law to sign up for CalSavers’ program or an alternative.
If you miss the CalSavers sign-up date, your business could get hit with financial penalties — up to $750 per employee. That’s why it’s critical to start planning now to figure out whether to sign up for CalSavers’ program or a different retirement plan.3
Any graphs or charts depicted are illustrative, for educational purposes only, and not intended to be investment, tax, and or legal advice.
Although the CalSavers Roth IRA is free for employers, it’s not necessarily the ideal solution for your business. That’s where alternatives, like a 401(k), can come in.
"State retirement programs aren’t really free. You need to consider the administrative labor added to every payroll run. Going with our state program meant manual calculations, dealing with employee information changes, and managing money movement."Rich H.Pallas Care
Client of Guideline. Views may not be representative of other clients
CalSavers alternative: What is a 401(k) and how does it work?
A 401(k) is an employer-sponsored retirement plan that gives both employers and employees more flexibility and options than a Roth IRA. Here are some key characteristics of 401(k)s:
- A 401(k) allows both pre-tax (traditional) and post-tax (Roth) contributions. With pre-tax contributions, savers are taxed when they withdraw funds. Post-tax contributions, on the other hand, have already been taxed, so employees don’t pay additional taxes when they withdraw (as long as they are 59 ½ years old).
- A 401(k) allows employer contributions. With a 401(k), you have the option to match your employees’ retirement savings contributions, helping them sock away a lot more — and helping to make you a more attractive employer.
- A 401(k) has higher contribution limits than Roth accounts. In 2025, for example, employees under 50 can contribute up to $23,500 to a 401(k), but only $7,000 to a Roth IRA.4
401(k)s aren’t just for large companies — you can offer one whether you have one employee or are a multinational corporation. All you need is a plan administrator, like Guideline. Our 401(k) is an affordable, scalable plan designed for businesses that need built-in flexibility.
Give your employees a roadmap to retirement
With Guideline, you can provide an impactful work benefit while minimizing paper work and fees
CalSavers vs. 401(k): Side-by-side comparison
While a standard 401(k) and the CalSavers’ Roth IRA program both give your employees a way to save for retirement directly from their paychecks, they differ in two critical areas: employee appeal and employer ease-of-use.
Because it’s a Roth IRA, CalSavers has limited flexibility for employees. Contribution limits are lower, pre-tax contributions aren’t available, and there’s no option to offer an employer matching contribution. Plus, as the plan administrator, you’re responsible for maintaining the plan, which includes processing employee payroll contributions, keeping your accounts up to date, and adding or removing employees as necessary — tasks that can be time-consuming without a payroll integration.3
A 401(k) like Guideline’s, however, has a greater range of benefits: higher contribution limits, pre-tax and post-tax contributions, and employer matching. Our research shows that 70% of employees prefer a 401(k) over a state-run IRA.1 And 93% of California employers who switched from CalSavers to Guideline say they spend less time on administration.5
Guideline’s plans come with twice as many funds and portfolio management services as CalSavers’ Roth IRA does, so your employees have options and expert guidance.6
Plus, one of the best parts as a busy employer? Guideline connects with more than 40 payroll providers, so you may not have to worry about uploads, errors or wasted time every payroll period.
Here’s how the comparison shakes out:
Pros of CalSavers
- ✅ Low barrier to entry: It’s quick and easy to enroll your business in the CalSavers Retirement Savings Program. All you need on hand is your EIN and employee roster.
- ✅ No employer fees or fiduciary responsibility: The program is free for employers to sign up and maintain. And because the state administers the program — unlike an employer-sponsored plan — you don’t have any fiduciary responsibility when it comes to your employees’ retirement savings.
Cons of CalSavers
- ❌ Manual administrative work: As an employer, you have to regularly process employee payroll contributions, update your accounts, and add and remove employees as necessary. If you don’t pay extra to integrate a payroll provider, you may have to do that work manually each payroll run.
- ❌ Lower contribution limits: Employees can only contribute a maximum of $7,000 ($8,000 for people over 50) to their CalSavers Roth IRA.4
- ❌ No employer match or tax credits: You can’t match your employees’ retirement contributions, which can limit their lifetime earning potential. You also can’t take advantage of tax credits the way you can with certain 401(k) plans.7
- ❌ Limited investment choices: CalSavers’ only gives employees 17 fund options to invest in. The program also doesn’t offer personalized investment advice or portfolio management services.6
- ❌ Higher fees for employees: Your employees pay a fixed account fee of $17 every year, along with a total annualized fee ranging from 0.325% to 0.49% of their account balance, which can be higher than many 401(k) plans.1 Compared to Guideline's managed portfolios which, have blended expense ratios ranging from .058% to .061% of assets under management, and an account fee between 0.15 to 0.35%.8
- ❌ No ERISA protection: The Employee Retirement Income Security Act (ERISA) is a federal law that creates reporting standards and employee protections for employer-sponsored retirement plans. Because CalSavers is run by the state, it’s not subject to ERISA requirements.
Pros of a 401(k)
- ✅ Tax-deductible employer contributions: You can contribute directly to your employees’ retirement savings via employer matching, then deduct your contributions as a business expense. That means your employees can save more money and you could lower your business’s tax liability.
- ✅ Flexible plan design: 401(k) plans are designed for flexibility, so you can make changes as your business grows.
- ✅ Recruitment and employee retention: Research shows that retirement savings are the second most important benefit behind health insurance. That’s why employer 401(k) matching can make your business more attractive when you need to hire, it also could foster loyalty among the people who already work for you.
- ✅ Pre- and post-tax options: Employees can make both Traditional and Roth contributions, whichever makes the most sense for their personal finances and lifestyles.
- ✅ Higher annual contribution limits: The contribution limits for a 401(k) are much higher than a Roth IRA — $23,500 compared to just $7,000. That means your employees can save more for their retirements faster.4
- ✅ Tax credit options: You can take advantage of federal tax credits, like SECURE 2.0, to cover the cost of your 401(k) for three years.7
Cons of a 401(k)
- ❌ No self-service: You can’t just create a 401(k) on your own — you need to sign up for a plan with a plan provider or administrator. Modern providers like Guideline can make this a pretty frictionless experience, though.
- ❌ Fiduciary risk: 401(k)s are employer-sponsored plans, which means 1) you’re responsible for acting in your employees’ best interests and 2) you naturally assume some legal and financial risk in doing that. (But don’t worry: modern plan providers like Guideline can also help alleviate that risk.)
- ❌ A 401(k) is not free for the employer: Guideline employer fees range from $39-$149/month + $4-$8 per active participant.9 However, you do get what you pay for. 81% of customers say Guideline fees are a low price to pay for the level of service and the ease of use it provides.10
Choosing the right plan
In our opinion, the CalSavers Retirement Savings Program helps you meet the mandate but, as detailed above, may be limited. If you’re thinking about offering a more comprehensive employee benefit and potential long-term company growth, it may be smart to invest in a flexible, tax-advantaged retirement plan dependent on your company's objectives. For example, Guideline’s 401(k) gives your employees more options and autonomy over their retirement savings, and your business plan options to help you grow. 97% of California business owners surveyed say Guideline plans are easy to manage, and 93% say Guideline gives them peace of mind.5
Looking for an affordable alternative to CalSavers? Start with Guideline today.
Give your employees a roadmap to retirement
With Guideline, you can provide an impactful work benefit while minimizing paper work and fees