In late December 2022, the SECURE (Setting Every Community Up for Retirement Enhancement) Act 2.0 was signed into law, making significant adjustments to the original 2019 SECURE ACT, which attempted to address retirement savings gaps and incentivize small businesses to provide retirement plans to employees. New provisions of the SECURE ACT 2.0 offer increased benefits to employers and employees, with over 90 new provisions that reward early retirement saving and small business retirement plans while increasing flexibility for those over the age of 60 as they prepare for retirement.
In this article, we’ll explore all of the major changes and tax incentives that the SECURE Act 2.0 provides and discuss how these new provisions could benefit your business and its employees.
New SECURE Act 2.0 Benefits and Tax Incentives
New SECURE Act 2.0 provisions provide improved tax credits to employers for plan start-up costs, contributions, the use of auto-enrollment, matching student loan repayment plans and much more. Let’s explore the specifics of each benefit below.
- Small businesses receive doubled tax credits for establishing new plans. Under the SECURE ACT 2.0, tax credits have been increased to cover 100% of any plan start-up costs for small businesses with up to 50 employees. The credits/costs are capped at $5,000 annually for each employer, granting eligibility each year over a three-year startup period and potentially providing employers up to $15,000 in tax credits. Formerly, only 50% of administrative costs were covered. Note: Businesses with 50 to 100 employees remain subject to the original SECURE Act terms (50% costs covered).
- Small businesses now receive credits for employer contributions. Under the updated act, small businesses with 50 or less employees can receive tax credits of up to $1,000 per employee for a percentage of their employer contributions. This applies to employees earning less than $100,000. Tax credit terms and percentages for businesses with 50-100 employees are different, but still beneficial to most employers.
- Employers receive tax credit for use of auto-enrollment. As a continuation of the original SECURE Act, employers remain eligible for an annual tax credit of $500 over the initial three years of auto-enrollment election. In a later section, we’ll explain new requirements and regulations related to auto-enrollment and explore which small businesses it will affect.
- Increased flexibility for Part-Time Workers, Early Withdrawers, and Those 60 or older. Unlike the conditions of the original SECURE Act, beginning in 2025, part-time employees who have worked 500 or more hours per year over a two-year period will be eligible to enroll in an employer-sponsored retirement plan.
Meanwhile, early withdrawers who would normally face a 10% penalty for withdrawals occurring before retirement age can, beginning in 2024, take single penalty-free withdrawals of up to $1000 annually as long as withdrawals are repaid within a three-year period. Additionally, hardship withdrawal rules for 403(b) plans are now the same as 401(k) plans, allowing employees to choose from a broader range of contributions if withdrawal is necessary.
Finally, the SECURE Act 2.0 allows individuals aged 60-63 to make and apply catch-up contributions beginning in 2025 – with increased savings amounts now landing at either 150% of the prior year’s indexed catch-up amount or $10,000 (whichever is greater). The IRA catch-up contribution limit will also be indexed to account for inflation beginning in 2023. - New support for employer-matching student loan repayment plans. Through provisions in the SECURE Act 2.0, employers will now be able to treat any employer-matching student loan payments as elective deferrals for matching contributions.
New Requirements of SECURE Act 2.0
Although the SECURE Act 2.0 provides a range of benefits and tax incentives to small businesses and their employees, there are some new mandatory provisions that employers need to understand.
Beginning in 2025, any plans that were started after December 29th, 2022, must add auto-enrollment by January 1st, 2025. This requirement is designed to increase participation rates among qualifying employees and improve overall retirement planning for employees of small businesses. According to the provisions of the SECURE Act 2.0, contribution rates must increase by 1% annually until they reach at least 10%, but not above 15%. Ongoing automatic contributions may range between 3% (minimum) and 10% (maximum) of employee compensation. Note that churches, governments, businesses less than three years old, and small businesses with 10 or fewer employees are not required to abide by the SECURE Act 2.0’s auto-enrollment and escalation protocols.
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The SECURE Act 2.0 includes a wide range of provisions that positively impact retirement planning for your business and its employees. To maximize these employee benefits and tax incentives now and in the future, it’s essential to utilize tools, software, and expertise that can support your business’ benefits administration and retirement planning to improve employee satisfaction and retention.
Ready to streamline retirement planning for your business and employees? Contact us today to start the process.
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