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.
Sign up for Kiplinger’s Free E-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.
-
Ten Cheapest Places to Live in TexasProperty Tax Looking for a cheap place to live in Texas? Look no further. These counties have the lowest property tax bills in the Lone Star State.
-
AI Is Missing the Wisdom of Older Adults: What It Means for YouAI will increasingly affect your healthcare and finances, but young workers are primarily designing the systems and getting most of the jobs.
-
The Three C's to Financial Success: A Financial Planner's Guide to Build WealthConsistency, commitment and confidence in your chosen strategy are more critical to your financial success than finding the 'perfect' financial plan.
-
A Financial Adviser's Guide to Solving Your Retirement Puzzle: Five Key PiecesIf retirement's a puzzle you're struggling with, try answering these five questions. The answers will guide you toward a solution.
-
You're Close to Retirement and Cashed Out: How Do You Get Back In?If you've been scared into an all-cash position, it's wise to consider reinvesting your money in the markets. Here's how a financial planner recommends you can get back in the saddle.
-
After the Disaster: An Expert's Guide to Deciding Whether to Rebuild or RelocateHomeowners hit by disaster must weigh the emotional desire to rebuild against the financial realities of insurance coverage, unexpected costs and future risk.
-
A Financial Expert's Tips for Lending Money to Family and FriendsWhat starts as a lifeline can turn into a minefield if the borrower ghosts the lender. Following these three steps can help you avoid family feuds over funds.
-
What the HECM? Combine It With a QLAC and See What HappensCombining a reverse mortgage known as a HECM with a QLAC (qualifying longevity annuity contract) can provide longevity protection, tax savings and liquidity for unplanned expenses.
-
721 UPREIT DSTs: Real Estate Investing Expert Explores the Hidden RisksPotential investors need to understand the crucial distinction between a REIT's option to buy a Delaware statutory trust's property and its obligation.
-
I'm an Insurance Expert: Yes, You Need Life Insurance Even if the Kids Are Grown and the House Is Paid OffLife insurance isn't about you. It's about providing for loved ones and covering expenses after you're gone. Here are five key reasons to have it.
