By Michelle LaRowe
Recently, I had a chance to ask Stephanie Breedlove, founder and partner of Breedlove & Associates, which is a payroll, tax & HR firm dedicated exclusively to serving the household employment industry, some questions about retirement savings for nannies. She shared with me some great insight into a new savings solution they’ve discovered. Here’s how our interview went.
eNannySource: For years nannies have struggled to find retirement savings options. Can you tell us about what you’ve found out?
Stephanie: There are a lot of retirement savings vehicles available, but most of the tax-advantaged plans are extremely difficult to administer, are expensive, or both. Families don’t have time to administer complex retirement plans. And the cost to have someone else do the administrative work for them (usually $200-$500 per year plus investment management fees) is money that should be going – directly or indirectly – into the nanny’s retirement account. After a lot of research, we found a solution that we believe fits the nanny industry extremely well. It’s a Roth IRA from Vanguard. Vanguard is among the most respected financial institutions in the country. They have created a simple retirement product that has no start-up costs, no annual administrative fees, and an investment management fee of only 0.2%, which is one-fifth the national average. The Roth IRA is owned and controlled by the employee so it’s not dependent on an employer. It uses after-tax dollars so the employee or employer may contribute to the account – up to $5,000 per year ($6,000 per year if the employee is 50 or older). Then all growth is tax-free and there are no taxes upon withdrawal at retirement age. The cost, flexibility, portability, and control are all perfect for the nanny industry – giving nannies the ability to supplement their retirement income if they desire without any cost or administrative burdens.
eNannySource: Why is it important for nannies to plan for retirement?
Stephanie: Social Security and Medicare taxes (paid by employees and matched by their employers) provide a critically-important base of income and medical insurance for retirees. But it’s really just a base. For most Americans, it will cover the necessities – but it won’t afford the lifestyle that most people want in their golden years. That’s where tax-advantaged retirement savings plans come in. They make it possible to amass a significant nest egg – especially if you start early. The compounding effect of tax-free growth over many years means you don’t have to sacrifice a lot of current earnings to have significant savings 25-30 years down the road. The latest stats show that 10,000 people retire each day. About 9,999 wish they’d saved more and started earlier!
eNannySource: How can nannies present the opportunity to families they work for?
Stephanie: Nannies can let their families know that they want to save for retirement. The family will understand since they’re almost certainly doing the same thing. If they have apprehension, it will probably be in not knowing what kind of plan makes sense, how to set it up, how to administer it, how it should be handled with payroll, what happens if you leave and how much will it cost. The beauty of the Roth IRA from Vanguard is it takes all those questions/burdens off of the family’s plate. The employee can set up the account and manage the investments on their own with no work or cost for the family. If the employer wants to contribute, they can. But the account is not contingent upon the employer making contributions. The employee can take bonus dollars or any other after-tax income/savings and do it themselves.
eNannySource: Do you think retirement contributions will become a standard benefit for nannies?
Stephanie: We think it will become more and more common. People are living longer and need larger retirement nest eggs. In addition, there will be a lot of media attention on the possibility of Social Security and Medicare benefit reductions in the future – all the discussion will raise awareness and prompt more people to take matters in their own hands and save for retirement themselves. Those socio-economic factors, combined with the ever-increasing professionalism of the nanny industry, will encourage more employees and employers to discuss retirement benefits as a part of the compensation package.
eNannySource:com: What else should we know about the Vanguard Roth IRA?
Stepahnie: Breedlove & Associates decided to look for a better retirement savings solution simply as a service to the nanny industry. We do not derive any commissions or income of any kind from Vanguard – we want to make sure all the money goes directly into each nanny’s account so their golden years will be more golden.
If you are interested in the tax-advantaged retirement savings plans or the Vanguard solution, please don’t hesitate to call.
Nannies interested in the Vanguard Roth IRA can contact Vanguard directly by visiting Vanguard Online or by calling 800-551-8631.
Stephanie Breedlove has an undergraduate degree in Finance from the University of Texas and an MBA with a concentration in accounting. She developed an expertise in accounting and information technology during her 6 years with Accenture before founding Breedlove & Associates in 1992, an entrepreneurial company born from her own frustration with paying her nanny professionally. Over the years, Stephanie and Breedlove & Associates have helped over 22,000 families with their No-Work, No-Worry service. www.myBreedlove.com← 5 Things You Should Really Rate Your Nanny On | Expert Insights: Questions and Answers with Tonya Sakowicz →