The SECURE 2.0 Act is an update to a previous law called SECURE: Setting Every Community Up for Retirement Enhancement. The goal of this updated legislation is to provide more opportunities for employees to build their nest eggs.
As a small business owner, you may be wondering how the new SECURE 2.0 Act could affect your operations. This new legislation has plenty of benefits for employees and employers alike!
Expanded Coverage for Part-Timers
Do you employ a staff of long-term part-time workers? SECURE 1.0 mandated that employers must offer 401(k) eligibility to part-time employees who worked at least 500 hours per year for three consecutive years. With the updates outlined in SECURE 2.0, that three-year threshold will be lowered to two years starting in 2025.
Automatic Plan Enrollment
Prior to the rollout of the SECURE Act, many employees had to enroll in their 401(k) programs manually. SECURE 2.0 eliminates that extra hassle and mandates automatic retirement plan enrollment for eligible employees. These changes will take effect at the beginning of 2025.
Retirement Plan Setup Tax Credits
Setting up a retirement plan for your business can detract from your new business startup funding; however, starting in 2023, businesses with up to 50 employees may be eligible for a tax credit. That credit can compensate you for up to 100 percent of the administrative costs associated with setting up a retirement plan for your employees.
“Starter” 401(k) Options
If your business does not offer a 401(k) plan to employees, you can opt for a “starter” program at a lower cost starting in 2024. Employees will be enrolled in that plan by default at a compensation deferral rate of between 3 and 15 percent. These programs will allow you to offer some retirement savings opportunities to your employees while saving valuable effort and funding.
How might the new SECURE 2.0 Act affect your small business? It’s good news all around—this legislation is specifically designed to help you help your employees. You’ll be able to offer retirement benefits to your staff with less effort and money required than in previous years.
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