SECURE 2.0 For Those Who Don't Have A Plan Yet
For those who DO NOT HAVE a retirement plan for your company yet: These provisions apply for you. Ignore all the other ones.
Step 1. Watch our video on the different retirement plans that are available for small businesses. Note that you get a pretty sweet tax credit for starting a new plan (see below).
Step 2. Please strongly consider using a SIMPLE IRA plan! As you can see below, they got a big boost.
| 2023 | Expansion of Start-up Plan Tax Credit | What existed before: The startup plan tax credit was expanded for certain plan costs paid by the employer, such as recordkeeping,
TPA and financial professional expenses. Under the old rules, there was a cap on the expenses.
Now: SECURE 2.0 establishes a new credit and expands the existing credit. Startup credit increased to 100% for companies with 50 or fewer employees. The existing cap of $5,000 per employer would be retained. The new credit offsets up to $1,000 of employer contributions per employee in the first year, phased down gradually over 5 years. Applies to companies with 100 or fewer employees, however, it is phased out for those with more than 50 employees. No credit for contributions to any employee making more than $100k (indexed after 2023). NOTE: no deduction for employer contributions qualifying for credit. |
| 2023 | 401(k): Retroactive First-year Elective Deferrals for Sole Proprietors | The sole owner and only employee of an unincorporated trade or business, who is the only employee of such trade or business, may treat any elective deferral to a 401(k) plan made before the tax return due date (determined without regard to any extensions) as having been made before the end of the plan’s first plan year. Applies only to the first plan year in which the section 401(k) plan is established. (So, you can wait and establish your plan retroactively for last year once you know your profits.) |
| 2023 | SIMPLE and SEP Roths are allowed | Employers are now able to offer Roth SIMPLE and SEP IRAs alongside traditional SIMPLE and SEP IRAs. |
| 2023 | 403(b) plans can band together | Are you a small non-profit? You can now join a pooled or multiple employer plan. The Act Permits 403(b) plans to be maintained as a MEP, (provided that the MEP is only comprised of either governmental or non-governmental employers). Additionally, 403(b) plans subject to ERISA may maintain a 403(b) pooled employer plan (“PEP”). |
| 2024 | SIMPLE Plan Enhancements | The SIMPLE plan contribution and catch-up limits (adjusted for inflation; $15,500 and $3,500 for 2023) are increased 10% for employers with 25 or fewer employees. Employers with 26–100 employees qualify for the higher limits only if they provide a dollar-for-dollar matching contribution up to 4% of compensation or a 3% nonelective employer contribution (up from regular requirements of 3% and 2%, respectively). Also, employers with SIMPLE plans have the option of making nonelective contributions above the currently required contributions (nonelective or matching) to each employee in a uniform manner, up to the lesser of $5,000 or 10% of compensation. |
| 2024 | “Starter K Plan” | This permits an employer that does not sponsor a retirement plan to offer a starter 401(k) plan (or safe harbor 403(b) plan). It requires that all employees be default enrolled in the plan at a 3% to 15% of compensation deferral rate. Could exclude union, non-resident aliens, and age/service excludable. No employer contributions are permitted. The limit on annual deferrals is $6,000 with an additional $1,000 in catch-up contributions beginning at age 50. Indexed after 2024. No ADP or top-heavy testing required. Future technical correction: Text doesn't match summary/intent. Summary says limits will match IRA limits, but the text limits deferrals to $6,000 rather than picking up the increased IRA limits for future years. |
| 2024 | SIMPLE: Adopt 401(k) Mid-Year | Employers are allowed to replace SIMPLE retirement accounts with safe harbor 401(k) plans during a year. This allows an employer to replace a SIMPLE IRA plan with a SIMPLE 401(k) plan or other 401(k) plan that requires mandatory employer contributions during a plan year. Limits are prorated based on days in effect. Rollovers into 401(a) or 403(b) plan are not subject to 2-year penalty tax. |
| 2024 | SIMPLE Additional Employer Contributions | Before: SIMPLE plans require employer contributions of either 2% of compensation or 3% of employee elective deferral contributions. 2024: This provision would permit an employer to make additional contributions up to the lesser of 10% of compensation (limited by 401(a)(17)) or $5,000 (indexed after 2024). |
| 2024 | SIMPLE Limit Increase | This provision increases the annual deferral limits to 110% of the 2024 limit on deferrals (indexed after 2024) in the case of an employer with no more than 25 employees. An employer with 26 to 100 employees would be permitted to provide these higher deferral limits, but only if the employer either provides a 4% matching contribution or a 3% employer contribution. Employer cannot have had a plan within 3 years. Treasury must provide more guidance. |
| 2025 | Required automatic enrollment and escalation for new plans adopted after Dec 29, 2022 | All new 401(k) and 403(b) plans adopted after 12/29/22 except businesses with fewer than 10 employees, new businesses less than 3 years old, and churches and governments -- must (beginning 1/1/25) automatically enroll participants at 3%-10% and increase the rate by one percent per year to at least 10%, but no more than 15%. Employees would have at least 90 days to opt out and take a distribution of any automatic deferrals. (Must have Eligible Automatic Contribution Arrangements (EACAs) withdrawal provision.) |
Do you have part-time employees? Take note:
Long-Term, Part-Time Eligibility: There are two rules for covering workers that worked 500+ hours several years in a row. They must be allowed to defer into the plan but do not need to receive a match or other employer contributions. You are NOT required to auto-enroll these employees, and you may exclude them from testing.
Secure 1.0 - 3 years of 500+ hours to enter - start tracking in 2021 - first possible entry 2024
Secure 2.0 - 2 years of 500+ hours - start tracking in 2023 - first possible entry 2025