The 2022 omnibus package includes legislation to strengthen how Americans save for retirement, which could lift Main Streets across the country.of Ensuring Strong Retirement Laws for 2022 (SECURE 2.0) builds on the first SECURE Act of 2019, which introduces retirement savings rules, such as raising the required minimum distribution (RMD) age and allowing workplace savings plans to provide pensions. Amended.
The new law includes several provisions to strengthen the U.S. retirement system, encouraging workplace planning savings and helping small businesses that want to help their employees prepare for retirement. It will be expanded and tax incentives for those who are already financially stable will be strengthened. With all the new changes coming with SECURE 2.0, here are six things small business owners should know.
- Increase startup credits for small businesses. SECURE 2.0 increases startup credits up to $5,000 to cover 100% of administrative costs (up from 50%) during the first three years of plans established by employers with up to 50 employees increase. It also clarifies that small businesses participating in the Multi-Employer Plan (MEP) are eligible for the credit. Providing tax credits provides a powerful incentive for employers by limiting the administrative burden associated with setting up and managing employee retirement benefits.
- Expanded auto-registration: Beginning in 2025, 401(k) and 403(b) plans will be required to automatically enroll eligible participants, but employees can opt out of coverage. Exceptions are small businesses with less than 10 employees of hers and start-up businesses less than 3 years of her age. Expanding automatic enrollment will help more workers, especially younger and lower-wage workers, save for retirement.
- Establish a starter 401(k) plan. Beginning in 2024, employers not yet offering retirement plans will be allowed to offer Starter 401(k) or Safe Harbor 403(b) plans to employees who meet age and service requirements. Through the Starter Plan, the annual deferral limit is the same as his IRA contribution limit, and employers cannot make matching or non-selective contributions to the Starter Plan. The Starter Plan is a great entry point for small businesses, especially considering employers don’t have to pay an equal contribution. This means that even small businesses can offer something to their employees.
- Changes to part-time worker offers: Beginning in 2025, employers must allow part-time employees (those who work more than 500 hours a year for two consecutive years) to participate in a retirement plan after two years of service. Employees with more than 1000 hours of service should be included after one year of service. The workforce includes more part-time workers than in the past, meaning more workers are eligible to contribute to employer-sponsored retirement plans.
- Create a military spouse tax credit. SECURE 2.0 establishes a tax credit for employers with up to 100 employees to qualify military spouses for retirement plans within two months of the date of hire, allowing each military spouse to cover all employment. Guaranteed 100% funding of primary contributions, all military spouses are eligible for matching or non-selective contributions earned only in two years of service. The tax credit is equivalent to $200 per military spouse plus employer contributions of up to $300 per individual and is valid for up to three years.
- Simple Employee Selective Deferral and Restricted Catchup: The law also increases the employee’s selective deferral limit for SIMPLE (Savings Incentive Match Plan for Employees) IRAs and increases the catch-up limit by 10% for employers with 25 or fewer employees. Also, if an employer with 26-100 employees contributes her 3% non-selective contribution or 4% matching contribution, the employer will increase.
A survey of 500 small businesses nationwide found that only 26% of those surveyed offer a 401(k) retirement plan. He cites three main reasons why small businesses don’t offer plans. 1) You think your business is too small to qualify, 2) You can’t afford to pay, or 3) Offering a plan is too expensive to set up and manage. With the majority of U.S. workers employed by small businesses, it’s important that small employers provide the tools they need to give workers retirement options. There is optimism that new provisions provided by the SECURE 2.0 Act will put small businesses in a better position to support their employees’ retirement plans.