The Secure Act 2.0 was signed into law at the end of 2022, making significant changes to help Americans save more for retirement. It has important implications for business owners. This is a great example of a business advisory topic business owners should be trusting their CPA to address proactively.
Here are some key provisions that business owners should be aware of:
Small business retirement plan startup credits
Under the Secure Act 2.0 small businesses (with fewer than 100 employees) who are setting up a 401(k) for the first time are eligible for a tax credit between $500-$5,000 for each of the first 3 years of the plan. This makes it more affordable for small business owners to set up retirement plans for themselves and their employees.
Auto-enrollment for new 401(k) plans
The bill includes a provision that for employers who establish new 401(k) plans after December 29, 2022 to automatically enroll employees starting in 2025, unless they opt out. This could help increase retirement plan participation rates among employees. Employees will be enrolled for a minimum of 3% up to 10%. New businesses (who are under 3 years old) and companies with fewer than 10 employees are not included in this requirement.
Expansion of catch-up contributions
In 2023, plan participants who are 50 or older can contribute an extra $7,500 per year to their 401(k). Starting in 2025, participants who are between ages 60-63 will be able to contribute an additional $10,000 per year to their 401(k). For those who make more than $145,000 per year, catch-up contributions must be made on a post-tax (Roth) basis.
This could allow business owners and their employees to save more for retirement later in their careers.
Requirement Minimum Distribution (RMD) Changes
When an account owner must withdraw from a retirement account, it is called a Required Minimum Distribution (RMD). Secure 2.0 increased the age for when RMDs must begin from 72 to 73 in 2023 and 75 in 2033. And, in 2024, RMDs won’t be required from Roth IRA accounts in an employer retirement plan. This is good for people who don’t need the money, so they can continue to allow it to grow tax-deferred.
The Secure Act 2.0 offers retirement planning and tax advantaged benefits for both employers and employees. For business advisory clients of Harper & Company, strategies will be discussed and integrated into your plan as appropriate. If you have questions about how the Secure Act 2.0 will affect your specific situation, please call us to schedule a time to discuss at (614) 456-7222.
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