I know that you are all excited to hear the nitty-gritty details of retirement legislation like the SECURE Act and SECURE 2.0, and that is why you have found yourself here, reading this. What I wanted to do was summarize and explain as much and as little as possible, and give you a place that you could come back to and reference.
I will list what is changing relative to the 401(k) industry. There are many other aspects of legislation that affect multiple industries, and so I want to keep it specific.
Main Takeaways of Retirement Legislation (SECURE and SECURE 2.0)
Federal tax credits and modern rules make starting a plan far more accessible for small businesses:
- Startup Administrative Credit: Covers up to 100 percent of ordinary administrative and setup costs, up to $5,000 per year for the first three years.
- Auto Enrollment Credit: Provides an additional $500 per year for 3 years if you include an eligible auto enrollment feature.
- Employer Match Credit: Additional tax credits of up to $1,000 per employee to help offset employer matching contributions over the first several years.
Additional plan structure takeaways include:
- Qualified Automatic Contribution Arrangement (QACA) can auto-increase beyond 10 percent (up to 15 percent).
- Part-time employees who normally would never meet statutory eligibility requirements now have a way to enter the plan (3 consecutive years of 500 hours is the key).
- Pooled Employer Plans or PEPs allow businesses to group together.
- RMD age is moved to 73 and 75 under newer updates.
- Employers are encouraged to have annuity provisions in retirement plans.
- Stretch IRAs are modified and 529 accounts can be used to help repay student loan debt.
Safe Harbor Auto Enrollment Increase to 15 Percent
The Safe Harbor Auto Enrollment feature, also known as the Qualified Automatic Contribution Arrangement (QACA), gets an allowance for employers to increase beyond 10 percent all the way to 15 percent. This is big for retirement savings, but remember that auto enrollment always includes an opt-out election.
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