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Building on the success of the SECURE Act, Congress passed a new set of laws called SECURE 2.0 in 2022. SECURE 2.0 includes the Securing a Strong Retirement Act, the RISE and SHINE Act, and the EARN Act, each aimed at further improving retirement plans in the United States.
The passing of both the SECURE Act and the SECURE 2.0 Act represent two pivotal moments in the evolution of retirement savings for Americans. In this article, we will explore the key provisions of both of these Acts and highlight their potential advantages for employers who wish to start a 401(k) retirement plan.
SECURE Act small business tax credits
One of the most substantial barriers to small businesses offering retirement benefits to their employees was the costs associated with starting a 401(k) retirement plan. Before the SECURE Act, a small business with 100 employees or less could claim a tax credit of up to 50% of their retirement plan startup costs, capped at $500.
The SECURE Act significantly enhanced these incentives, allowing businesses to claim a credit of up to $5,000 per year for three years, depending on how many non-highly compensated employees were eligible to participate in its 401(k) retirement plan. This credit could be applied to 50% of a business’s administrative expenses. Moreover, an additional $500 tax credit was introduced for those that added an automatic enrollment feature to their 401(k) retirement plans.
What’s Changed in SECURE 2.0
Recognizing the success of the increased tax credits from the 2019 SECURE Act, the U.S. Congress took it a step further. Thanks to SECURE 2.0, small businesse with fewer than 50 employees can receive a startup credit of 100% of administrative expenses, add up to $5,000 per year for three years.
Additionally, employers can get a tax credit equal to the contributions they’ve made for non-highly compensated employees, up to a limit of $1,000 per employee. The full credit is available to employers with 50 or fewer employees and is phased out for employers with between 51 and 100 employees.
SECURE Act required minimum distributions
Required minimum distributions (RMDs) are the minimum amounts you must withdraw from your 401(k) retirement accounts each year once you reach a certain age. Recognizing that Americans are living and working longer, the SECURE Act increased the age for RMDs from 401(k) plans from 70½ to 72. This gave retirees more flexibility in their retirement planning.
What’s changed in SECURE 2.0
SECURE 2.0 adjusted the age for RMDs once again. It set a schedule for gradually increasing the age, raising it to 73 in 2022 and to 75 beginning in 2033.
SECURE Act long-term, part-time employees
Part-time employment has become more common in an increasingly flexible job market. However, many of these workers were excluded from 401(k) retirement plans. The SECURE Act required employers to allow part-time employees who worked at least 500 hours per year for three consecutive years to participate in the company’s 401(k) retirement plan, expanding retirement plan accessibility to a broader range of workers.
However, many of these workers were excluded from 401(k) retirement plans. The SECURE Act required employers to allow part-time employees who worked at least 500 hours per year for three consecutive years to participate in the company’s 401(k) retirement plan, expanding retirement plan accessibility to a broader range of workers.
What’s changed in SECURE 2.0
Under SECURE 2.0, long-term, part-time employees gain eligibility earlier, allowing them to start saving sooner. The new law shortens the eligibility period for part-time employees working at least 500 hours per year from three years to two years, beginning in 2025.
The impact of SECURE 2.0 in 2023 and beyond
SECURE 2.0 offers an array of opportunities for employers and employees. The additional tax incentives and broader inclusion criteria make it an ideal time to explore the benefits of providing a 401(k) retirement plan.
Vestwell’s digital retirement plan platform can make it easy to offer and administer the right company-sponsored 401(k) for your business. By combining technology with user-first design and offering 3(16) plan administration services, Vestwell can help you take the hassle out of setting up and administering a 401(k) retirement plan. Don’t miss out on the benefits of SECURE 2.0 – learn more about how to get started with Vestwell here.
Vestwell Holdings Inc. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice nor as a solicitation or recommendation of any investment. You should consult your own tax, legal and accounting advisors before engaging in any transaction or making any changes to your retirement plan.
This article was contributed by Vestwell, OnPay’s partner for modern, customizable 401(k) plans for small businesses. Learn more about OnPay’s payroll software integrations, or see how Vestwell can help you offer a great retirement plan for your employees.