Written By: MB Group
The Setting Every Community Up for Retirement Enhancement (SECURE) Act stands as one of the most important pieces of legislation in the last decade. Even though it includes several provisions that directly impact small business owners, most know very little about the SECURE Act other than its name.
At MB Group, we've created a quick, easy to read a blog post outlining the SECURE Act and what it means specifically to small to medium-sized business owners. Continue reading to learn more; and if you have questions or would like to learn more about starting a retirement plan, don't hesitate to reach out to the Certified Public Accountants at MB Group today!
One of the most significant implications of SECURE Act for small business owners is the development of "open" multiple employer plans (MEPs). Open MEPs allow a consultant, financial institution, record keeper or other firms to offer a defined contribution (DC) plan — like a 401(k) — that is open to other unrelated employers.
These types of plans can be banded together in a single MEP to effectively reduce the costs of offering a plan due to economies of scale. By pooling multiple plans together, you can also reduce fiduciary liability. In effect, these changes will open offering a DC plan to smaller employers.
Previously, a single employer's violation of the tax qualification requirements would cause the entire MEP to be disqualified. However, the Act rectifies this known problem by taking the noncompliant employer's plan into a separate plan —preserving the rest of the employers' plans who are in compliance.
The SECURE Act works to encourage small business owners to establish retirement plans. Under the new Act, there will be incentives for small businesses with less than 100 employers to offer their employees a retirement plan. For the first three years, the tax credit will be increased from $500 up to a max of $5,000 a year for the first three years, which can help offset startup costs.
Automatic Enrollment is a powerful retirement plan feature that helps and even nudges employees toward saving for retirement. This feature automatically sweeps all eligible employees into the retirement plan at a predetermined deferral rate. The Act offers an extra tax credit for small businesses that add this feature to their DC plan. You may be eligible to receive a $500 credit per year for three years.
The Act makes a way for long-term, part-time employees to begin saving for retirement. It requires 401(k) plans with eligible employees who work less than 1,000 hours but more than 500 in three consecutive 12-month periods to be allowed to contribute. Best of all, these employees can be excluded from top-heavy and nondiscrimination testing purposes. In addition, employers are not required to make matching contributions for these employees.
Over the last few years, insurance companies have pushed this particular provision pertaining to their "lifetime income" initiative. This allows plan sponsors to offer a wider selection of annuities in their 401(k), so participants can opt to protect their investment balance and withdraw money over time. As long as certain conditions are met, the SECURE Act will provide protection to plan fiduciaries who choose an insurance company to offer guaranteed retirement income contracts in the event the insurance is unable to meet its contractual obligations.
In addition to several enhancements for small businesses, the SECURE Act implemented a few key changes for workers. Now, workers of any age can contribute to a traditional IRA as long as they have earned income. As a result, workers who are over 70.5 who have yet to retire can continue contributing to their IRA for retirement.
The Act also raised the required minimum distribution age from 70.5 up to 72, which is critical because Americans are retiring later, living longer, and need additional time to save. And lastly, the Act allows penalty-free distributions for adoption or childbirth expenses. This additional feature can help incentivize workers to save more for retirement since they'll know they can access if it is necessary.
If you're a small business owner, the new SECURE Act includes several provisions to help you help your employees save for retirement. This new Act helps small businesses level the employee-benefit playing field by offering more competitive incentives to employees. Most importantly, it includes several provisions to help all Americans save more for retirement.
For more on the SECURE Act or assistance starting a retirement plan for your employees, contact the experts at MB Group.
Information Source Credit: ISC Group
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