Secure Act 2.0: New Rules for Business Retirement Accounts

The Secure 2.0 Act is a new act that may make it easier for American citizens to prepare for retirement. These changes can benefit younger people, especially those who are just beginning to set up a retirement account. Moreover, it could also benefit middle-aged and older people who are approaching retirement.

The Secure 2.0 Act, provides unique benefits for companies and individuals. Individuals may be able to save more money for retirement, and companies have several tax advantages that they can utilize.

Many of these changes will occur in the coming years. It is important for companies to stay abreast with developments to ensure that they take advantage of these benefits and remain in compliance with new regulations.

What is SECURE Act 2.0?

The Secure Act 2.0 may help employees save more money for retirement and improve their financial health. This act also helps employees by lowering the cost of setting up a 401K and providing companies with new ways to offer unique benefits to its employees.

Both branches of congress observed that not enough Americans had enough money saved for retirement. Consequently, they decided to pass bills that would improve the financial security of US citizens.

A recent Federal Reserve survey found that 28% of US adults did not have any retirement savings. This act may help more Americans, including part-time employees, save more money for their retirement. Moreover, this act also helps support individuals who may need to access retirement funds due to personal emergencies.

When Did Congress Pass SECURE 2.0?

Congress passed the Setting Up Every Community for Early Retirement Enhancement (Secure Act) in 2019. There was strong bipartisan support for this initiative several years after this.

President Biden signed this act into law in December 2022, and some of the provisions went into effect in 2023. There will likely be many new changes implemented throughout the coming years.

How Does SECURE 2.0 Affect Businesses?

Businesses should be aware of some new regulations that began in 2023 and those that may begin in 2024 and 2025. In 2025, employees will be required to automatically enroll eligible employees in 401 K plans with a 3% or higher contribution. The minimum amount will increase every year by 1%, up to a minimum of 10%.

There have also been many amendments to existing rules. The catch-up provision has increased, so employees can potentially contribute more to their 401ks. Moreover, the required minimum distribution age has also increased from 72 to 73, and may increase to 75.

This new act could be a mixed bag for some small businesses. There are plenty of tax credits available for companies now, and companies may be able to offer more attractive 401k plans for their employees. On the other hand, there could be a flurry of new changes to the laws from 2024-2027. Small businesses will have to monitor these changes to ensure they comply with the new regulations.

SECURE Act 2.0 Tax Considerations

Some of these new requirements may be confusing for small businesses, as they may create more tax reporting requirements and other compliance work. In the past, companies did not have to enroll all employees in a 401k plan, and part-time employees have not historically been eligible to participate.

According to new regulations in the Secure Act 2.0, companies can also create 401k plans for part-time employees. If companies want to do this, they need to track their employee’s hours to determine if certain part-time employees are eligible.

There are also a lot of new tax incentives for companies, as they can offer matches for other payments, such as employee student loan payments. Moreover, some small businesses, including businesses with 50 or fewer employees, may be eligible for a tax credit of up to 100% of the first three years of their operations.

Preparing for Compliance

Under the new regulations, companies must automatically enroll employees in 401ks unless the employee opts out. Moreover, they also need to offer this option to their part-time employees who have worked over 500 hours in three consecutive years.

This act provides an increase to the Sec. 45 E tax credit, which means that businesses may receive even more tax credits for enrolling employees in a 401k plan.

It is crucial for companies to continue monitoring their employee plans. They may also need to monitor employees who may be eligible to enroll in a plan in the future. Some small businesses may need to rely on financial advisors or accountants to remain compliant.

Some companies, such as new businesses, businesses with fewer than 10 employees, churches, and other groups may be exempt from these regulations.

When Does SECURE Act 2.0 Take Effect?

It is very important to keep track of when there will be new requirements. For example, employees will be required to automatically enroll employees in retirement plans at the beginning of 2025, according to Section 101.

Companies also have the option to help employees with student loans by matching their student loan payments. This new regulation went into effect at the beginning of 2024, and some regulations will not begin until as late as 2027.

Closing Thoughts

The Secure Act 2.0 may allow companies to offer a unique set of retirement advantages for younger and older employees. This act may help address retirement issues in the United States, including potentially lower social security payments and the lack of preparation from some individuals who do not have retirement accounts. Moreover, younger employees may be able to get a head start on preparing for retirement. Companies can even match their student loan pay

It is crucial for businesses to keep up with developments, which will gradually be implemented between 2024 and 2027. Small businesses will need to ensure that they enroll individuals who are automatically eligible, and even inform part-time employees if they are eligible to participate.

Tax Hack can help connect you with professionals who can help you navigate tax issues and legal changes in the United States. Contact us if you have any questions about the new Secure Act 2.0 or any other tax related matters.

Book your session now!