- Provisions from the SECURE Act makes it easier for small business owners to offer retirement plans
- One such provision is open MEPs, allowing small businesses to group together and offer retirement plans while lowering adminstration costs.
Recently the President of the US signed into law the Setting Every Community Up for Retirement Enhancement Act (known as the SECURE Act), which expands retirement plan options for many small businesses and may encourage these companies to offer additional benefits to their workers. This can increase access to tax-advantaged accounts and prevent older Americans from living beyond their retirement assets.
Open MEPs
Part of the plan is the Multiple Employer Plan (MEP) which can allow small businesses to group together to offer 401k and other retirement plans, thus lowering their administration costs. The high costs of more traditional and complex plans such as the 401k have kept them out of reach for many small businesses. By joining companies together to offer plans, the costs should be lower and employees may see a greater return on their investments.
Annual Tax Credit
Maximum tax credits for small businesses starting up plans have also increased from $500 to $5,000, providing additional incentive. While many employees of smaller companies don’t have retirement benefits, this may not be malicious. Having the funds and staff to administer and manage these plans can add up for the business owner, and the SECURE Act may help put the option back into reach.
Small companies will receive a tax credit that can offset the cost of starting a 401k plan or Simple IRA in cases where they enact auto-enrollment. This can be on top of the tax credit they may already be receiving. Many financial advisors recommend auto-enrollment as the easiest way for Americans to save for retirement, but not all Americans are covered. Additional opportunities for auto-enrollment through small business or state plans can help prepare more people for retirement.
Automatic Enrollment Setup
The new Act allows small businesses the option of setting up automatic enrollment in retirement plans as well as joining with other businesses to offer those greater choices. Business owners do have additional options, including the Simplified Employment Pension (SEP), which is less complex and less expensive than traditional 401k plans.
The plan allows companies that may be from different industries to group together as well, where previously this was not permitted, as all were required to share common characteristics. Long-term part-time workers working fewer hours will also be able to participate. Instead of being invited to participate with eligibility of one full year or 500 hours, the SECURE Act drops this to a minimum of three consecutive years of at least 5,000 hours.
Increased RMD Age
The SECURE Act also increases the required minimum distribution (RMD) age for qualified account holders (such as those with a 401k or IRA). Previously 70 ½, the SECURE Act raises this to age 72, based on updated life expectancies. The bill also eliminates the maximum age for traditional IRA contributions which was also previously 70 ½. Per the House Committee on Ways and Means, many Americans are living longer and continue being employed beyond the traditional retirement age.
Additional parts of the plan include the use of tax-advantaged 529 accounts to repay qualified student loans. There is also the removal of the so-called “stretch IRA” which affects how non-spouse retirement account inheritors may receive payments in the future – there is a limit now of 10 years, where it used to be a possible lifelong income.
Additional information should be sought from a financial planner if questions persist. As a small business owner, you can learn more about your retirement plan options in IRS Publication 560.
