Calling all California business owners with at least one W-2 employee. Did you know that as of December 31, 2025, all Golden State employers are required to offer a qualified retirement benefit?
That's because of the California State Retirement Mandate (CalSavers) — which was designed to make sure 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 quickest way to stay compliant. But it comes with real limitations: you can't match your employees' contributions, the savings limits are lower, and you could be stuck with more manual work every payroll period.
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), Gusto can help you make a more informed, confident decision.
Keep reading for all the key details.
Understanding the basics: What is the CalSavers mandate and how does the savings program work?
In 2016, 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, you are mandated by law to sign up for CalSavers' program or an alternative — and should do so now if you haven't yet.
If you miss the CalSavers sign-up date, your business could get hit with financial penalties — up to $750 per employee in the first year you meet the “eligible employer” criteria. 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
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.
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 and post-tax (Roth) contributions. With pre-tax contributions, savers are taxed when they withdraw funds. Roth contributions, on the other hand, have already been taxed, so employees don't pay additional taxes when they withdraw (as long as it is a qualified distribution).¹¹
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 IRA accounts. In 2026, employees under 50 can contribute up to $24,500 to a 401(k), but only $7,500 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 Gusto. We offer affordable, scalable plans designed for businesses that need built-in flexibility.
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 if you don’t pay extra to integrate a payroll provider.³
A 401(k) like Gusto'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.⁵ And 93% of California employers who switched from CalSavers to Gusto say they spend less time on administration.10
A 401(k) plan at Gusto comes with twice as many funds and portfolio management services as CalSavers' Roth IRA does, so your employees have options and professional portfolio guidance.⁶
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 **$7,500** ($8,600 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.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 — in 2026 the contribution limit for a 401(k) is $24,500 compared to just $7,500. That means your employees can save more for their retirements faster.⁴
✅ Tax credit options: You may be able to 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 401(k) setup: 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 Gusto can make this a pretty seamless 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 Gusto can also help alleviate that risk.)
❌ A 401(k) is not free for the employer: Gusto employer fees range from $49-$179/month + $6-$8 per active participant.⁹ However, you do get what you pay for. 81% of customers say Gusto fees are a low price to pay for the level of service and the ease of use it provides.¹⁰ Plus, there are several tax credits you may be able to take advantage of to offset the cost.7
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, a 401(k) at Gusto 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 Gusto plans are simple to manage, and 93% say Gusto gives them confidence in their plan.10
Looking for an affordable alternative to CalSavers? Start with Gusto today.
FAQs
Is CalSavers the same as a 401(k)?
No. CalSavers is a state-run Roth IRA program, while a 401(k) is an employer-sponsored retirement plan. The key differences are contribution limits (CalSavers caps at $7,500/year vs. $24,500 for a 401(k) in 2026)12, investment choices, and the ability to offer employer matching, which CalSavers doesn't allow.
Do I need to sign up for CalSavers if I already have a 401(k)?
No. California's retirement mandate requires employers to offer a qualified retirement benefit, but a 401(k) satisfies that requirement. If you already sponsor a 401(k), SIMPLE IRA, or other qualifying plan, you are exempt from CalSavers enrollment but may still need to file an exemption with the state.13
Can employers match contributions through CalSavers?
No. CalSavers does not allow employer matching contributions. Only employees can contribute to their CalSavers accounts. If you want to match your employees' retirement savings — which can be a powerful recruiting and retention tool — you'll need to offer a 401(k) or similar employer-sponsored plan.
Is CalSavers actually free for employers?
CalSavers charges no fees to employers directly, but the program isn't truly cost-free. It either costs time for employers to manually process payroll contributions each pay period, update employee rosters, and manage account changes — or you have to pay extra to integrate a payroll provider. Employees also pay an annual account fee of $14 (billed quarterly at $3.50) plus annualized fees of 0.225%–0.39% of their balance, which can be higher than fees on many 401(k) plans.
Disclosures
¹ CalSavers charges an assumed annual account fee of between 0.20% (.05% State Fee and a .15% Program Administrative Fee) on assets under management as of May 2026 according to CalSavers Program Description. This fee includes the State Fee and the Program Administrative Fee. The State Fee is payable to the Board to offset expenses related to the establishment, oversight, and administration of the Program. The State Fee accrues daily and is factored into each Investment Option’s Unit Value. The Program Administrator receives the Program Administration Fee for providing record keeping and administrative services for the Program pursuant to a contract with the Board. The Program Administration Fee accrues daily and is factored into each Investment Option’s Unit Value. The fee presented includes the Underlying Fund Fee (0.025%-0.19%), the State Fee (0.05%), and the Program Administration Fee (0.15%).Fees are subject to change by the state without notice and should be checked prior to making any decision.
² The fee presented does not include other fees that a 401(k) participant may incur, including, but not limited to, from mutual fund expense ratios and a monthly maintenance fee to participants who end employment. See here for more information regarding Gusto Retirement Services, LLC fees. Go to https://www.calsavers.com/ for more information on CalSavers participant fees.
³ The CalSavers mandated registration deadline with at least 1 employee (as reported to the EDD in the preceding calendar year), who are not otherwise exempt from participation, can register with CalSavers. The registration deadline for employers with 1-4 employees was December 31, 2025. Requirements to report your exemption apply. Gusto has prepared this summary from third-party sources as of July 2026. The information herein is considered to be reliable at the time of writing, may not necessarily be all-inclusive, is not guaranteed as to accuracy and is subject to change at any time without notice. The information provided herein is general in nature and is for informational purposes only. It should not be used as a substitute for specific tax, legal and/or financial advice that considers all relevant facts and circumstances. Investing involves risk and investments may lose value. You are advised to consult a qualified financial adviser or tax professional before relying on the information provided herein. Deadlines, fees, and other program details are subject to change by the state without notice and should be checked prior to making any decisions and can be reviewed by visiting the State of California's Franchise Tax Board. Visit the CalSavers site to learn more.
⁴ May be adjusted annually to account for IRS cost-of-living adjustments. Learn more.
⁵ Gusto research run with Suzy. Insights based on data collected February 2025 from a survey of 1002 California-based employees who do not have a retirement benefit from their employer. Gusto was not identified as the survey sponsor. The experiences of the respondents in this survey may not be representative of all people.
⁶ Investment advisory services for Gusto 401(k) product (when 3(38) fiduciary services are appointed) and SEP IRA/IRA products are offered by Gusto Investment Services, LLC, an SEC-registered investment adviser, the "Affiliated RIA"). Specific references herein to "asset-based fees" or "investment options" or "we" or "our" in this specific context is referring solely services provided- or fees charged- by the Affiliated RIA. See the Affiliated RIA's Form ADV 2A Brochure for more information regarding its services and fees. Recordkeeping services are offered by Gusto Retirement Services, LLC. 3(16) plan administration services are also offered by Gusto Retirement Services, LLC and only made available to clients who utilize an eligible payroll provider. Gusto uses a third-party to provide custodial services. Custodial fees are paid by Gusto Retirement.
⁷ You should consult a tax professional to determine what types of tax credits or deductions your company is eligible to claim. Actual eligibility and credit amounts depend on number of employees, employee compensation levels, and individual tax circumstances.
⁸ Investment advisory services for Gusto's 401(k) product (when 3(38) fiduciary services are appointed) and SEP IRA/IRA products are offered by Gusto Investment Services, LLC, an SEC-registered investment adviser. The estimated total AUM fee of 0.31% combines the average fund fees for the managed portfolios of 0.06% with an assumed account fee of 0.25%. The account fee is applied to assets under management and is deducted on a monthly basis at 1/12 of the annual stated rate based on the month-end account balance. This information is provided for illustrative purposes only and the actual total AUM fees will vary based on the portfolio and/or funds selected. The managed portfolios have blended expense ratios ranging from 0.058% to 0.061% of assets under management. Expense ratios for custom portfolios will vary. These expense ratios are subject to change by and paid to the fund(s). View full fund lineup. The assumed annual account fee applied to assets under management is deducted on a monthly basis. See the Form ADV 2A Brochure for more information regarding fees. Gusto Retirement Services, LLC, Gusto, Inc.'s affiliate, has prepared this summary from third-party sources as of July 2026. This information is considered to be reliable at the time of writing, may not necessarily be all-inclusive, is not guaranteed as to accuracy and is subject to change at any time without notice. Guideline RK, LLC is now Gusto Retirement Services, LLC.
⁹ See here for more information regarding fees.
¹⁰ Research insights based on data collected in March 2025, from a survey conducted by Gusto that consisted of 156 clients who were active at the time of the survey based in California. Gusto was identified as the survey sponsor. Though the survey is broad in scope, the experiences of the respondents in this survey may not be representative of all clients.
¹¹ Roth distributions will be tax-free if the following conditions are met: Roth contributions are always distributed tax-free. The earnings on Roth contributions will be tax-free if the following conditions are met: (a) you're either over age 59 ½, disabled, or have died AND (b) it has been 5 years since your first Roth contribution under the current plan. Please consult a qualified financial advisor or tax professional to determine what is applicable to your financial situation.
12 Subject to IRS cost-of-living adjustments. In 2026, individuals can contribute up to $24,500 between their Roth and Pre-tax 401(k) account. If you’re 50 or older, you can contribute an additional $8,000 ($32,500 in total). If you're 60, 61, 62, or 63, your 401(k) catch-up is $11,250 instead ($35,750 in total). Individuals can contribute up to $7,500 between their traditional and Roth IRA accounts. If you’re 50 or older, you can contribute an additional $1,100 ($8,600 in total).
13 Contact your tax advisor to confirm you are in compliance.
