In the twilight of 2019, President Trump signed into law the Setting Every Community Up for Retirement Enhancement (SECURE) Act that took effect January 1, 2020.
At its core, the SECURE Act is meant to encourage increased retirement savings and provides a number of paths for individuals to do so. It has pushed back timelines for contribution and required distributions. It also created stipulations for part-time employees to participate in employer 401(k) plans if they meet certain stipulations in addition to a host of other enhanced saving opportunities.
While the majority of Americans save for retirement through a work-based plan, employees at small businesses have largely been unable to do so. Nearly 75 percent of workers at companies with fewer than 100 employees weren’t covered by an employer plan in 2017. Small business owners have rightfully cited startup costs and administrative burdens as hurdles to offering plans.
To address these issues, one less publicized provision of the SECURE Act is a massive increase in the small business tax credit to cover the costs of the first three years an employer offers a workplace retirement plan. Originally, the tax credit was $500 a year for up to three years; however, the new provision now allows up to $5,000 a year (for a total of up to $15,000 over three years). There are also increased credits available for employers who require their workers to automatically enroll in their company’s retirement plans.
Perhaps most importantly though, a part of the SECURE Act now allows small business owners the ability to band together to create Multiple Employer Plans (MEPs). MEPs pool small business resources to offer workplace retirement plans that are easier to administer and more cost effective for their owners. This also includes an annuity option for existing retirement plans, which previously could only be taken as a lump sum for taxation purposes.
Why does this matter? If you want to attract the highest quality employees for your open positions, you need to utilize avenues to offer plans that increase the allure of working for you. According to a 2019 study by the Society for Human Resource Management, retirement benefits ranked second in importance (after health care) among all the benefits that employers offer.
The new law comes with a variety of updates and procedures. We can help you realign your business practices today to start capitalizing on its benefits, whether you’re a small business owner or an employee contributing to a work-based plan.
Want to learn more on how these and other portions of the SECURE Act affect your taxes? Contact our office at 724-216-5180 or use our online form to schedule a consultation.