The SECURE 2.0 Act includes several provisions to help small business owners increase opportunities for their employees to save more.
About 36% of Americans can’t cover a $400 emergency expense, according to the Federal Reserve (opens in new tab). And a study from Ascent (opens in new tab) found that the savings balance for the average American is only $4,500.
If you’re reading this article, it’s probably not you. But if you own a small business, you may have stakeholders that fit that description.
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Expanding the ways people can save is a good thing we want to happen – especially if you’re a small business owner. PwC Employee Financial Wellbeing Survey 2022 (opens in new tab) notes that financial stress and money worries affect several areas of employees’ lives, including their productivity and work participation.
Human resources software services company ADP (opens in new tab) reports that in addition to lower productivity, financial strain also leads to higher health care costs.
While it’s not guaranteed that saving more will lessen your employees’ financial worries, it doesn’t hurt to try. There are many provisions in the SECURE 2.0 Act that can help, and while people like to say that the devil is in the details, I like to say that the planning opportunities are in the details. This is especially true if you are a small business owner looking to help your employees save more.
While planning always depends on who you are, your unique situation, and what goals you want to achieve, it’s helpful to familiarize yourself with the provisions in the SECURE 2.0 Act and what they may mean for you as a small business owner. As I always recommend, check with your financial professional to discuss what these provisions mean for your specific situation.
Enhanced savings opportunities
To address lower savings rates among average Americans, the SECURE 2.0 Act includes a number of expanded savings opportunities, including:
Starter 401(k). This is a simpler version of the 401(k) that companies can set up without having to invest their own money. People can defer salary in this starter 401(k) up to IRA limits and start saving for retirement in a more cost-effective and tax-advantaged way.
Whether that takes off is another question. Most people who don’t save enough either don’t do enough or don’t have enough access to retirement savings tools. This tends to do it easier for small businesses to create plans with fewer restrictions, less liability and less cost.
The saver’s match. This is a match of up to $1,000 in government savings that will go into an individual’s retirement account, against the credit we get now at tax time. This is designed to shift the current tax credit into a retirement account to encourage more people to save for retirement. But you have to save in a retirement account to get the match.
Extended Mandatory Auto Enrollment for New Retirement Accounts. If you were to set up a new 401(k) for your employees, there would be a requirement to set up auto-enrollment for them and a requirement that their salary deferrals grow automatically over several years. Research has shown that these types of provisions increase savings, which can mean your employees will be better prepared for retirement.
Expanded retirement plan setup loans for small businesses. This increases the credit for the administrative costs of setting up a new pension plan from 50% to 100% in some cases, which is a nice extra benefit if you’re a small business owner.
Increased pension contribution changes
Some other provisions to be aware of relate to IRAs and other retirement plan contributions. Here are some:
IRA withdrawal limit indexed for inflation. For IRAs, we are allowed after age 50 to put an additional $1,000 into these accounts as long as we are still working or our spouse has income. This amount has not historically been indexed for inflation, but that $1,000 provision will now be indexed for inflation.
Incentives for enrollment in the pension plan. This makes it so that you can give a small incentive—like a gift card—to your employees to encourage them to sign up for a retirement plan.
Consult a professional
There are more than 100 pension provisions in this bill that change the rules of retirement savings. It can take years of study to understand the rules, so it makes sense to use your resources in this area.
These are some things to discuss with your trusted financial professional, who will likely be well versed in the rules, so you can make the optimal decisions for your small business.
This article was written by and represents the views of our contributing advisor, not Kiplinger’s editorial staff. You can check advisor records with the SEC (opens in new tab) or with FINRA (opens in new tab).
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