SECURE Act 2.0: A Game-Changer for Retirement Strategies in the Business World
By Kristi Blausey, Director, Tax & Business Services
The landscape of retirement savings is dramatically evolving. The SECURE Act 2.0, passed in 2022, is groundbreaking legislation that offers business owners and individuals innovative strategies to fortify their financial future. And now, almost two years later, many of its provisions are just taking effect. Let’s explore how the new legislation can reshape your approach to retirement planning.
The Act enhances tax credits for small businesses that establish retirement plans, making it more financially feasible for these entities to establish this benefit for their employees. The start-up credit covers 100% of administrative costs for small businesses, defined as up to 50 employees. Employers with 51 to 100 employees are also eligible for the credit but are subject to a phase-out schedule.
A truly unique feature of SECURE 2.0 is the ability for employers to make matching contributions to retirement plans based on their employees’ student loan payments. This can help business owners attract and retain talented employees who may be burdened by student loan services.
With the goal of encouraging early participation, the Act requires new plans (effective 2025) to automatically enroll eligible workers rather than requiring employees to opt-in to participate.
The Act also lowers the barrier for long-term, part-time workers to participate in retirement plans. Part-time employees with 500 hours of service in two consecutive 12-month periods will no longer be excluded from retirement plans. Small businesses can now foster a more inclusive business culture by offering retirement benefits to a broader workforce.
The flip side to the benefits of increasing participation is that retirement plan audits may be more likely than in the past. Once your plan reaches 100 participants, it is important you understand the annual audit rules and whether your plan may require an audit.
The most pronounced benefits impacting individuals include delayed mandatory distributions, increased thresholds in catch-up contributions limits, penalty-free distributions for certain emergency expenses, and the expansion of the qualified longevity annuity contracts.
For plan participants who are not at least 5% owners in the employer and were born between 1951 and 1959, required minimum distributions (RMDs) are delayed until age 73. The Act delays RMDs until age 75 for those born in 1960 or later.
Regarding catch-up contributions, beginning January 1, 2025, catch-up limits for participants ages 60-63 will increase to at least $10,000 from a current catch-up limit of $7,500. Beginning January 1, 2026, higher-earning individual’s catch-up contributions must be made to a post-tax Roth account. Employers should consider amending their plans to accommodate Roth contributions by their employees prior to this deadline.
Qualified longevity annuity contracts are deferred income annuities purchased with retirement funds -either from a 401k or IRA. The Act now provides that up to $200,000 can be used to purchase an annuity, where payments can be delayed until age 85. The $200,000 would also be excluded from the annual required minimum distribution calculation.
The SECURE 2.0 Act presents a multitude of opportunities for businesses to support their employees’ retirement goals while simultaneously reaping the rewards of a loyal and stable workforce. As you navigate these new provisions, consider how the Secure Act 2.0 can benefit you, your business, and your employees.
