Do you think it's too late to start a retirement plan for 2020? The answer may not be what you expect.
One of the most significant pieces of retirement legislation in recent history, the Setting Every Community Up for Retirement Enhancement (SECURE) Act, makes it easier for businesses to offer retirement plans beyond the year in which it is deemed effective. Employers, under the Act, are now able to establish a retirement plan up to the tax filing date including any extensions. Building upon this benefit, the small employer tax credit for a new retirement plan was increased to the greater of $500 or $250 for each non-highly compensated eligible employee (up to $5,000). This can also be applied for the first three years the plan is in effect.
Additional Credits Under the SECURE Act
Further, there is an additional small employer automatic enrollment credit available on new or existing 401(k) and Simple plans – of up to $500 a year for the first three years (for a possible total credit of $5,500). This extension for plan establishment can be a significant planning tool when analyzing your tax situation. Which leads us to other areas in which the SECURE Act may impact you. Required Minimum Distributions (RMD) increased from age 70 ½ to 72 – and if the SECURE Act 2.0 passes, they may go as high as age 75 and provide a possible exemption for accounts with assets under $100,000.
Also keep in mind that part-time employees will be permitted to participate in your business’ retirement plan beginning January 1, 2024 – but need to be tracked for eligibility starting this year. If passed, the SECURE Act 2.0 shortens the window to two years. One last note: you are only required to allow participation in the plan, but at this time, there is no requirement that employees must receive a company match.
Contributing to an IRA
One last change provided by the SECURE Act is the elimination of an age restriction to contribute to an IRA. The old rules only allowed contributions to an IRA until age 70 ½, but the SECURE Act opened that up to any age as long as there is earned income. This is just a small peek into the SECURE Act as we watch to see if the SECURE Act 2.0 will pass and provide even greater enhancements to the rule.
Don’t hesitate to reach out to your Sikich advisor or me at Marie.Marks@Sikich.com to strategize if establishing a retirement plan makes sense for your company and employees.
Advisory services offered through Sikich Financial, an SEC Registered Investment Advisor.