The SECURE Act 2.0 has several provisions that significantly impact small businesses, primarily focusing on making it easier and more affordable to offer retirement plans and encouraging employee participation. Key changes include increased tax credits for starting a new retirement plan, automatic enrollment features, and expanded eligibility for part-time employees.
Key Changes and Impacts:
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Increased Tax Credits:
Small businesses with up to 50 employees can receive a tax credit covering 100% of retirement plan start-up costs for the first three years, capped at $5,000 annually. Additionally, there’s a new tax credit for employer contributions, potentially up to $1,000 per employee.
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Automatic Enrollment:
For plans established after December 29, 2022, automatic enrollment in 401(k) and 403(b) plans is required, starting with a 3% contribution and increasing annually up to at least 10%. Employees can opt out of these contributions.
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Part-time Employee Eligibility:
The SECURE Act 2.0 reduces the service requirement for long-term, part-time employees to be eligible for 401(k) plans from three years to two.
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Employer Contribution Incentives:
The Act offers tax credits to small businesses that make matching or non-elective contributions to employee retirement accounts, further incentivizing participation. This credit applies to new plans with less than 100 employees.
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Student Loan Repayment Matching:
Employers can now make matching contributions to employees’ retirement plans when they make student loan payments, encouraging both retirement savings and debt management.
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Simplified Plan Options:
The Act allows small businesses to join Multiple Employer Plans (MEPs) or Pooled Employer Plans (PEPs), potentially reducing administrative burdens and costs.
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Starter 401(k) Plans:
For small businesses not currently offering retirement plans, the Act allows for the establishment of Starter 401(k) plans, simplifying the process and providing a more accessible option.
In essence, the SECURE Act 2.0 aims to make it easier and more attractive for small businesses to offer retirement plans, potentially benefiting both employers and employees.
Key Changes to SIMPLE IRAs under SECURE 2.0:
SECURE 2.0 has made several changes impacting SIMPLE IRA plans, including increased contribution limits, the ability to offer Roth options, and allowing mid-year plan replacements with a safe harbor 401(k). Specifically, it allows employers with 25 or fewer employees to automatically increase deferral and catch-up contribution limits by 10%. Additionally, it permits employers to replace a SIMPLE IRA plan with a safe harbor 401(k) mid-year and allows for Roth contributions under a SEP or SIMPLE IRA arrangement.
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Increased Contribution Limits:
For employers with 25 or fewer employees, the SIMPLE IRA annual salary deferral limit and the age 50 catch-up contribution limit are increased by 10%. For 2024, the deferral limit is $17,600, and the catch-up limit is $3,850 for those employers.
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Roth SIMPLE IRA Option:
Employers can now offer a Roth option for SIMPLE IRA contributions, allowing employees to make after-tax contributions with tax-free withdrawals in retirement.
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Mid-Year Plan Replacement:
Employers can terminate a SIMPLE IRA plan mid-year if they replace it with a safe harbor 401(k) plan.
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“Super Catch-Up” Contributions:
SECURE 2.0 also introduces a “super catch-up” provision for those aged 60-63, potentially allowing for higher catch-up contributions in certain plans.
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Additional Non-Elective Contributions:
SECURE 2.0 allows employers to make an additional nonelective contribution to each eligible employee in a uniform manner.