Secure Act

Secure Act 2.0: How Will It Impact Retirement Plans?

Gene Marks

Transcript

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Gene (00:03):

Hey everybody, this is Gene Marks and welcome to this week’s episode of Small Biz Ahead. Hey, happy new year by the way. Glad you’re joining me. I wanna talk to you about actually some legislation that passed at the very end of 2022, which is gonna impact many, many small businesses, most likely yours and mine. It’s called Secure 2.0. I am sure there will be plenty about this written on the Small Biz Ahead website, and I myself will probably come back and revisit some of these issues in future podcasts. But I want you to be aware of some of the big changes that are coming to retirement plans, which really will have a positive impact for both you and your employees. I’ll try to go through this relatively quickly so at least you know, the high points of Secure 2.0. It passed as part of the Omnibus spending bill at the end of 2023.

Gene (00:56):

It carries on from the original Secure Act from 2019. That Secure Act provided tax credits for small businesses to start up 401K plans and it continues with tax credits. In fact, it expands them for businesses with less than 50 employees that set up 401k plans. That’s what Secure 2.0 does. So that’s a really good thing. Now, Secure 2.0 also has some really interesting new incentives that are gonna be coming over the next few years that will impact both you and your employees. For some businesses and some employees, when you match a 401k contribution, the government will give you a tax credit of up to a thousand dollars per employee per year. Now again, there are specific rules and eligibility that applies for that, but you should certainly be talking about that in advance with your benefits advisor or your accountant or your payroll company.

Gene (01:57):

Let me give you some other things that the Secure 2.0 is going to include. It’s gonna include a provision for student loan matching. So beginning in 2024, if you’ve got any employees that are paying down their student loans, you can kind of treat that as a contribution to their retirement plan, which means you can match it. So say like during 2024 you have an employee that shows you documentation that they paid $5,000 towards their student loan. You will be allowed to contribute $5,000 as a match to their retirement plan, their 401K plan, assuming that you have one and I hope you do, you will get a deduction for it and the employee does not get taxed on that contribution. So just bear in mind that student loans are now sort of being interwoven with retirement savings to give employers a chance to put money away for their employees.

Gene (02:50):

Here’s another thing. Starting in 2024, employees are gonna be able to set up emergency funds. They’ll be able to put away about $2,500 a year, segregating it in their 401k. Employers can still match, but they can then pull out a thousand dollars per year for anything that qualifies as an emergency and they won’t be penalized for doing it. Now what’s the definition of an emergency? Honestly guys, it’s a little short early to tell. So we’re gonna have more information on that as time goes by, what actually defines an emergency. But for now you can consider it to be any type of family leave issue, some emergency medical expense, something like that. But more definitions will be coming up. The good news is employees can take money out of their 401ks without getting penalized and that helps you as a business owner. Cuz a lot of times for my clients when an employee has an issue, they come to their their bosses for help.

Gene (03:44):

And rarely do I see us turning down our employees, but it’s a bit of a burden. Here is a potential way for them to fund that. Another big thing that’s gonna start in 2025 is automatic enrollment. If you have a 401K plan, you are going to be required to enroll your new employees in it and start deducting 3% of their compensation, then put it towards their retirement plan. Now your employees will have the benefit to opt out. They’ll have that choice, but the hope is that some won’t and they’ll get used to it and they’ll start putting money away for their retirement. In addition, starting in 2025, your part-timers, if they work for just two years, at 500 hours a year, they’ll be allowed to participate in your 401k plan. Also, starting in 2027, certain employees that are making less than about $71,000 a year that’s married filing jointly may be able to get up to a $2,000 matching 401k contribution from the government.

Gene (04:46):

So it’s like you don’t even have to match it. The government will match it for them, which is pretty awesome stuff as well. Finally, there are two things in this legislation that appeals specifically to your older employees. Number one is they can keep their money in their retirement plan for longer. Starting this year, the minimum distribution age increases to 73 years old, which means that your employees can keep their money in now up to the age of 73, they can keep working if they want to. They’re not forced to start taking money out of their 401k plan, which the current rules or the previous rules forced them to do. And finally, if you’ve got any employees, yourself included, that are over the age of 60, you can now contribute up to $10,000 more annually over and above the maximum contribution that the IRS allows.

Gene (05:36):

That way you can start really putting away for retirement. Now, by the way, there are some income limitations to this, so be aware of that. One other thing, in the future we will be allowed to do matching contributions not only to a regular 401k but to what are those after tax Roth 401ks as well. So a lot of stuff, I get it. I’m not sure if you were taking notes or not because it is a lot of materials, but here’s the takeaway. Over the next few years there’s gonna be a lot of different changes to your 401k plans. A lot of incentives to start one, a lot of incentives to help your employees put money away for retirement. This benefits you, guys okay? I mean the more money your employees put away for retirement, the more money you can put away for your retirement as well without failing any of those discrimination tests where highly compensated employees can’t put more money away relative to others.

Gene (06:29):

Not only that, but with the ability of these emergency withdrawals, hopefully there’ll be some bit of a help for you as the employee. You won’t have to come up with extra cash to help your employees when the government is now allowing them to use some of that retirement savings for emergencies as well. The benefits here will also encourage you to do some matching for people paying down their student loans and also hopefully keep your older employees employed that much longer if they want to do that cuz they’ve got the ability to put even more money away for their 401ks and also can keep their money in their retirement plans for longer. Lots of good stuff that is part of the Secure 2.0 changes the legislation that just passed at the end of 2022. So keep your eyes open for that. I am sure we’ll be revisiting this again on this podcast.

Gene (07:15):

I am sure Small Biz Ahead will be contributing blogs. Maybe I’ll write one myself, getting into more details on this stuff. But it’s a lot of great changes for both you and your employees in the next few years. You’ve been listening to the week in review for the Hartford’s Small Biz Ahead podcast. Thank you so much for listening. I’m glad that you have got some information to help you navigate your business this week. I’ll be back with you next week with another episode of the Small Biz Ahead podcast. I’ll pick another topic that I hope we’ll be able to give you some insights and advice to help you run your business. If you need any other advice in running your business or tips, join us. Come to us at SmallBizAhead.com or SBA.TheHartford.com and you can get lots of tips and help for running your business. My name is Gene Marks. Thank you for listening. We will see you again next week. Take care.

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