Retirement planning is a critical aspect of financial stability, and choosing the right retirement savings plan can significantly impact your future. CalSavers vs 401(k); these two popular options in the United States often need clarification for the consumers to select the best for themselves.

While both aim to help individuals save for retirement, they differ in several aspects, including eligibility, contributions, investment options, and tax implications. We’ll explore the intricacies of CalSavers and 401(k) plans to help you make an informed decision about which option suits your needs best.

What is CalSavers? – CalSavers vs 401(k)

CalSavers is a retirement savings program established by the state of California to provide a convenient and accessible way for employees to save for retirement.

It is a state-sponsored Roth IRA (Individual Retirement Account) program designed for workers whose employers do not offer a retirement plan.

Eligibility for CalSavers

CalSavers is available to employees working for eligible employers who do not offer a retirement plan, such as a 401(k) or pension.

Eligible employers include those with five or more employees who do not already offer a qualified retirement plan.

Modus Operandi – CalSavers vs 401(k)

CalSavers operates similarly to a traditional Roth IRA. Contributions are made through payroll deductions, and employees have the option to choose their contribution amount.

These contributions are invested in a diversified portfolio of funds, and employees have the flexibility to change their investment options as needed.

Unlike the 401(k) plans in which both employers and employees make contributions, CalSavers is only funded by the employees and not the government.

What is a 401(k) Plan?

A 401(k) plan is a retirement savings account sponsored by an employer. It allows employees to contribute a portion of their pre-tax earnings to the account, which can then be invested in a variety of options, such as stocks, bonds, and mutual funds.

Eligibility and Participation

Clearing the fuss around CalSavers vs 401(k), employers may set specific eligibility criteria for participation in a 401(k) plan.

For instance, a minimum age or length of service requirement. However, many employers offer 401(k) plans to all eligible employees as part of their benefits package.

Contribution Limits and Matching

401(k) plans have higher contribution limits compared to CalSavers. In 2024, the maximum annual contribution limit for 401(k) plans is $20,500 for individuals under 50 years old and $27,000 for those 50 and older.

Additionally, some employers offer matching contributions, where they match a portion of the employee’s contributions, providing an incentive for saving.

CalSavers vs 401(k): A Comparative Analysis

Contributions and Matching

One of the significant differences between CalSavers and 401(k) plans is the contribution limits and employer matching.

While CalSavers operates as a Roth IRA with lower contribution limits, 401(k) plans allow for higher contributions and the potential for employer matching, which can significantly boost retirement savings.

Investment Options

Another key distinction is the investment options available within each plan. CalSavers typically offer a limited selection of investment options, often consisting of target-date funds or other diversified funds.

In contrast, 401(k) plans may provide a more extensive range of investment choices, including individual stocks, bonds, and mutual funds, allowing for greater customization of the investment portfolio.

Portability and Flexibility – CalSavers vs 401(k)

CalSavers offers portability, meaning that if an employee changes jobs, they can maintain their account and continue making contributions.

However, 401(k) plans also offer portability through options such as rollovers into an Individual Retirement Account (IRA) or a new employer’s 401(k) plan.

Additionally, 401(k) plans may offer greater flexibility in terms of loans and hardship withdrawals, although these come with specific eligibility criteria and tax implications.

Tax Implications

CalSavers vs 401(k) in terms of taxes. Both CalSavers and 401(k) plans offer tax advantages, but they differ in their tax treatment.

Contributions to CalSavers are made on an after-tax basis, meaning that withdrawals in retirement are tax-free.

In contrast, contributions to a traditional 401(k) plan are made on a pre-tax basis, reducing taxable income in the year of contribution, but withdrawals in retirement are subject to income tax.

However, some 401(k) plans offer a Roth option, where contributions are made after-tax, similar to CalSavers, offering tax-free withdrawals in retirement.

Factors to Consider When Choosing

When deciding between CalSavers and a 401(k) plan, several factors should be taken into account:

Employment Status


If your employer offers a 401(k) plan with matching contributions, it may be advantageous to participate in the plan to take advantage of the employer match. However, if you are not eligible for a 401(k) plan or your employer does not offer one, CalSavers provides a valuable alternative for saving for retirement.

Matching Contributions – CalSavers vs 401(k)

Consider whether your employer offers matching contributions and the impact this can have on your retirement savings. Employer matching can significantly boost your retirement nest egg and may outweigh the benefits of other retirement savings options.

Investment Options

Evaluate the investment options available within each plan and consider whether they align with your investment goals and risk tolerance. While CalSavers offers a simplified investment approach, 401(k) plans provide greater flexibility and customization in investment choices.

Tax Considerations

Before pulling the plug on CalSavers vs 401(k), make sure to check the tax matters. Examine the tax implications of each plan, including whether you prefer to make pre-tax or after-tax contributions and the impact on your taxable income in retirement.

Additionally, consider whether you anticipate being in a higher or lower tax bracket in retirement, as this can influence the optimal retirement savings strategy.

Portability and Flexibility

Assess the portability and flexibility of each plan, particularly if you anticipate changing jobs or need access to funds before retirement. While both CalSavers and 401(k) plans offer portability, 

401(k) plans may provide greater flexibility in terms of loans and withdrawals, albeit with specific restrictions and tax consequences.

CalSavers vs 401(k) – Which One is Better?

The crux is that the choice between CalSavers and a 401(k) plan depends on various factors, including eligibility, employer offerings, investment options, tax implications, and individual preferences.

Both options offer valuable opportunities for saving for retirement, and the decision ultimately comes down to which plan aligns best with your financial goals and circumstances.

By understanding the nuances of CalSavers vs 401(k) plans and considering the factors outlined in this guide, you can make an informed decision that sets you on the path toward a secure retirement.