New Retirement Plan Rules Impact Small Businesses
In the final days of 2022, Congress passed a new set of retirement rules designed to facilitate contribution to retirement plans and access to those funds earmarked for retirement.
The law is called SECURE 2.0, and it is a follow-up to the Setting Every Community Up for Retirement Enhancement (SECURE) Act passed in 2019.
The sweeping legislation has dozens of significant provisions; here are some of the key provisions of the new law that impact small business owners.
Small Business Retirement Plans Get Boost from Congress
Offering a retirement plan can be a powerful tool when you’re competing to attract the best employees. And now, thanks to the recently passed SECURE Act 2.0, setting up and running a new retirement plan is more affordable than ever using the following tax credits:
Tax credit for startup costs
A tax credit equal to 100 percent of the administrative costs for establishing a workplace retirement plan is available for up to three years for eligible businesses with 50 or fewer employees. Businesses with 51 to 100 employees will still adhere to the original tax break rules, which caps the credit at 50% of administrative costs and with an annual cap of $5,000.
Taking advantage: This credit could cover all set-up and administrative costs during the first three years of a plan’s existence, as average 401(k) set-up costs range from $1,000 to $2,000, while average annual administrative costs range from $1,000 to $3,000. To keep your annual administrative costs are low as possible, it may be worth shopping around for different plan providers as the fees can vary.
Tax credit for employer contributions
Eligible businesses with up to 100 employees may qualify for a tax credit based on its employee matching or profit-sharing contributions. This credit, which caps at $1,000 per employee, phases down gradually over five (5) years and is subject to further reductions for employers with 51 to 100 employees.
Taking advantage: Once this tax credit has expired after the plan’s first five years of existence, employer contributions to 401(k), SEP and SIMPLE plans are still tax deductible up to certain limits. This means that both the employer and employee can both continue to reap tax savings for the entire life of the retirement plan.
And remember that employees can still contribute to their own individual IRA. So let your employees know that in addition to having either a 401(k), SEP or SIMPLE account through your company, they may also qualify to contribute to their own traditional IRA or Roth IRA.
Additional Highlights for Employers
In addition to starting and contributing to a workplace retirement plan, SECURE Act 2.0 also introduces the following:
Automatic enrollment
As of 2025, the Act will require employers to automatically enroll employees into workplace plans. However, employees can choose to opt-out. Businesses with 10 or fewer employees, or companies that have been in business for less than three, are expected to be exempt from the 2025 automatic enrollment requirement.
More details about automatic enrollment will be
“Businesses that are less than three years old, or those that employ 10 or fewer employees, are exempt.”
Student loan matching
In 2024, companies can match employee student loan payments with retirement contributions. The rule change offers workers an extra incentive to save for retirement while paying off student loans.
SIMPLE and SEP
2023 onward, employers can make Roth contributions to savings incentive match plans for employees (SIMPLE) or simplified employee pension (SEP).
These are just a sample of the retirement plan changes introduced by Secure Act 2.0. Refer to your financial advisor for more details.
It’s never been easier or more affordable to start a retirement plan for your business. Please call if you have questions about your current retirement plan or starting a new plan. Abacus Payroll and Alloy Silverstein are here to assist. Contact an Abacus Payroll provider today!
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