On December 29th, 2022, President Biden signed the SECURE Act 2.0 into law, just six days after the legislation had passed through the United States Congress. The goal of this new bill is to incentivize more employers to offer retirement savings benefits and remove some of the barriers to retirement saving for American workers.
In February, we covered the ways SECURE Act 2.0 will impact required minimum distributions for those who have already retired (Click here to read). Today, we will cover the immediate changes for employees and businesses. It is important to note that there are changes that do not take place until 2024 and 2025. So, what do employers and employees need to know about employer sponsored plans this year?
Better Retirement Plan Start-Up Incentives
Small businesses with 50 or fewer employees can take retirement plan start-up credits to offset up to 100% of their plan start-up costs. Under the original SECURE Act, these businesses could receive a credit to offset 50% of that cost. Businesses with no retirement plan can apply for start-up credits if they join a Multiple Employer Plan (MEP). Businesses up to 100 employees will still be eligible for the 50% credit offered under the previous SECURE Act.
Household Employee Plans
Families can now establish Simplified Employee Pension (SEP) IRA plans for any household employee. This allows household employees, such as housekeepers, maids, babysitters, or gardeners, to have access to plans that were previously unavailable.
Relaxed Emergency Loans Requirements for Retirement Plans
Traditionally, loans from a 401(k) have been limited to 50% of the account balance or $50,000, whichever is lower. Under the SECURE Act 2.0, loans for those in a federally declared “disaster area” will be able to borrow up to 100% of their account balance or $100,000, whichever is lower. Eligible individuals will also be subject to a more generous payback window.
Extended Roth Capabilities
The SECURE Act 2.0 establishes Roth availability in SEP and Simple IRA plans. Employers will now be able to make contributions to traditional and Roth retirement accounts. Under previous regulations, employers were only allowed to make contributions to traditional accounts.
The SECURE Act 2.0 will continue to enhance opportunities for Americans saving for retirement. Some of these enhancement include the expansion of auto-enrollment in retirement savings plans for new employees, the option for employers to make contributions to an employee’s 401(k) that match their student loan payments, and, eventually, extend the age at which a retiree has to take required minimum distributions to 75.
At Community First Bank and HFG Trust, our team of experts are focused on helping you live the life you envision. If you have any questions or would like to review your plan, connect with an HFG Trust Advisor today.