The SECURE Act 2.0 was signed into law on December 29, 2022, which will work to close the retirement savings gap with over 90 new retirement provisions. The bill includes a few specific changes that are significant for small businesses:
- Providing more flexibility for saving for individuals aged 60+ and approaching retirement. [i]
- Encouraging saving for retirement earlier, and increasing certain limits, for example, catch-up contributions. [ii]
- Doubles tax credits for new plans. Small businesses with up to 50 employees will be eligible for a credit equal to 100 percent of the amount contributed by the employer, up to $1,000 per employee. The employer receives a credit equal to 100 percent for years one and two, 75 percent for year three, 50 percent for year four, and 25 percent for year five. [iii]
- Additionally, the current three-year start-up credit- generally equal to 50 percent of the plan expenses, up to a cap of $5,000- has increased to 100 percent of plan expenses, up to a cap of $5,000 for employers with up to 50 employees. [iv]
- The tax credit of $500 per year for the first three years of electing auto-enrollment is still available.
- With the signing of the SECURE Act 2.0, one way that employers are encouraging employees to begin contributing to employer-sponsored retirement plans, is that employers can offer small incentives like gift cards. [v]
- The original SECURE Act allowed long-term, part-time workers to engage in 401(k) plans. Employers with a 401(k) plan were required to offer the plan to employees who completed either one year of employment (not to exceed 1,000 hours) or three consecutive years of employment where they’ve worked at least 500 hours. SECURE Act 2.0, however, reduces the three-year rule to two years. Beginning in 2025, workers on the job for 500 hours per year for two consecutive years are eligible to participate in a retirement plan. [vi]
- Matching contributions for student loan payments will be available. Beginning in 2024, employers are permitted to make matching contributions under a 401(k), 403(b), 457(b), or SIMPLE IRA plan based on student loan repayments.
Consider consulting a financial professional to help you understand complex legislation changes and to see if any of these new provisions can be applied to you and your retirement strategy.
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
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[i]Retirement Planning Tips in Your Mid-60s and Beyond (investopedia.com)
[ii]Catch-Up Contributions Improved Under SECURE Act 2.0 | Kiplinger
[iii]SECURE Act 2.0: Changes to Retirement Planning (2023) | Human Interest
[iv]Retirement Plans Startup Costs Tax Credit | Internal Revenue Service (irs.gov)
[vi]SECURE Act 2.0: Changes to Retirement Planning (2023) | Human Interest
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