The SECURE 2.0 Act includes several provisions to help small-business owners increase opportunities for their employees to save more.
If you’re reading this article, that’s likely not you. But if you own a small business, you might have stakeholders who fit that description.
Expanding the ways people can save is a good thing that we want to happen — especially if you are a small-business owner. The 2022 PwC Employee Financial Wellness Survey notes that financial stress and money worries impact several areas of employees’ lives, including both their productivity and attendance at work.
The human resources software services company ADP reports that in addition to lower productivity, financial strain also leads to higher health care costs.
While it’s not guaranteed that saving more will lessen your employees’ financial worries, it doesn’t hurt to try. There are a lot of provisions in the SECURE 2.0 Act that can help, and while people like to say the devil is in the details, I like to say the planning opportunities are in the details. This is especially true if you are a small-business owner looking to help your employees save more.
While planning always comes down to who you are, your unique situation and what goals you want to achieve, it’s helpful to be familiar with the provisions in the SECURE 2.0 Act and what they might mean for you as a small-business owner. As I always recommend, get in touch with your financial professional to discuss what these provisions mean for your specific situation.
Expanded Savings Opportunities
To address lower rates of saving among the average American, the SECURE 2.0 Act includes a variety of expanded savings opportunities, including:
Starter 401(k). This is a simpler version of the 401(k) that companies can set up without having to put in their own money. People can defer salary into this starter 401(k) up to the IRA limits and start saving for retirement in a more cost-effective, tax-advantaged way.
Whether this takes off is another question. Most of the people who aren’t saving enough either don’t make enough or don’t have enough access to retirement-savings vehicles. This attempts to make it easier for small businesses to set up plans with fewer limitations, less liability and less cost.
Saver’s Match. This is a match of savings of up to $1,000 from the government that will go into an individual’s retirement account, versus the credit we now get at tax time. This is designed to move the current tax credit to a retirement account to encourage more people to save for retirement. But you must be saving in a retirement account to receive the match.
Expanded mandatory automatic enrollment for new retirement accounts. If you were to establish a new 401(k) for your employees, there would be a requirement to set up automatic enrollment for them and a requirement that their salary deferral be automatically increased over several years. Research has shown that these types of provisions increase savings, which could mean your employees will be better prepared for retirement.
Enhanced credits for small-business retirement plan setup. This increases the credit for the administrative costs of setting up a new retirement plan from 50% to 100% in some cases, which is a nice additional benefit if you are a small-business owner.
Enhanced Retirement Contribution Changes
Some other provisions to be aware of have to do with IRA and other retirement plan contributions. Here are a few:
IRA catch-up limit indexed for inflation. For IRAs, we are allowed after age 50 to put an additional $1,000 in these accounts so long as we are still working, or our spouse has income. That amount hasn’t historically been indexed for inflation, but that $1,000 catch-up provision will now be indexed for inflation.
Retirement plan sign-up incentives. This makes it so you can give a small incentive — like a gift card — to your employees to encourage them to sign up for a retirement plan.
Consult a Professional
There are more than 100 retirement provisions in this bill that are changing retirement savings rules. It could take years of study to understand the rules, so it makes sense to leverage your resources in this area.
These are some things to talk over with your trusted financial professional, who is likely well-versed in the rules, so you can make the optimal decisions for your small business.
Jamie Hopkins is a well-recognized writer, speaker and thought leader in the area of retirement income planning. He serves as Director of Retirement Research at Carson Group and is a finance professor of practice at Creighton University's Heider College of Business. His most recent book, "Rewirement: Rewiring The Way You Think About Retirement," details the behavioral finance issues that hold people back from a more financially secure retirement.
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