The SECURE 2.0 Act includes several provisions to help small-business owners increase opportunities for their employees to save more.
About 36% of Americans can’t cover a $400 emergency expense, according to the Federal Reserve. And a study by the Ascent found that the savings balance for the average American is only $4,500.
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.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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.
-
Dow Hits New Intraday High on Fed Day: Stock Market TodayNot even the most important stock in the world could keep the oldest equity index down on a significant day for markets.
-
Savings Goal CalculatorTools Want to know how much you need to save each month to reach your financial goals? Our calculator helps you build a realistic savings plan.
-
Gray Divorce Can Throw Your Retirement a Curveball: What to KnowIf you're entering retirement and going through a divorce at the same time, you've got some work to do to shore up your long-term financial security.
-
I'm a Real Estate Investing Expert: Optional 721 UPREIT DSTs Can Be the Best of Both WorldsBefore investing in any 721 UPREIT exchange, look for one that offers a straightforward, investor-friendly exit.
-
How an Expired Passport Thwarted Blackmail (and What Other Important Documents You Should Keep)An optometrist produced his expired passport to foil a blackmail attempt by the daughter of a former employee. After proving he was out of the country on the date of a forged diary entry, he took it a step further.
-
Optimize, Grow, Retain: The Power of Annual Client ReviewsFinancial advisers can use annual reviews to help enhance client outcomes, strengthen relationships and build their practice.
-
I'm a Real Estate Investing Pro: This Is What Investors Should Know About Truck Stop InvestmentsTruck stops might seem like good investments, but they can actually be a risky gamble due to unstable fuel prices, unreliable operators and coming changes in transportation. Instead, consider safer options like industrial or residential properties.
-
Don't Disinherit Your Grandchildren: The Hidden Risks of Retirement Account Beneficiary FormsStandard retirement account beneficiary forms may not be flexible enough to ensure your money passes to family members according to your wishes. Naming a trust as the contingent beneficiary can help avoid these issues. Here's how.
-
This Is How Life Insurance Can Fund Your Dreams NowBeyond a death benefit, life insurance can provide significant financial value and flexibility through 'living benefits' while you are still alive, helping with expenses like education, business ventures or retirement.
-
Potential Trouble for Retirees: A Wealth Adviser's Guide to the OBBB's Impact on RetirementWhile some provisions might help, others could push you into a higher tax bracket and raise your costs. Be strategic about Roth conversions, charitable donations, estate tax plans and health care expenditures.
