Secure Act Passage Equals Great News for Small Business Owners
With the recent passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, several changes are projected to drastically change the retirement plan landscape for the better. Here are five ways how:
Extension of Plan Adoption Beyond Calendar Year End for Plans Beginning in 2020
Arguably the greatest hinderance to starting a retirement plan is the deadline for plan adoption which is prior to the close of a calendar year. This deadline has been lengthened to the due date (including extensions) of the tax return for the taxable year. The extension grants plan sponsors, financial advisors, recordkeepers, CPAs, and Third‐Party Administrators (TPAs) additional time to set up the plan, consider the various needs of the employer, and decrease potentially costly errors caused by a rushed set‐up process.
Tax Credit Limit Increased for Small Employer Start‐up Plan Costs
Prior to the SECURE Act, certain employers were able to recognize a $500 tax credit due to costs associated with start‐up plans for a period of three years. Now, the maximum credit has increased to the greater of $500 or $250 per non‐Highly Compensated Employee (NHCE). This credit is capped at $5,000 and cannot exceed 50% of the start‐up costs.
Required Minimum Distribution (RMD) Start Date Pushed to Age 72
The old ruling required individuals to take RMDs beginning in the year in which they turned 70 ½ with a deadline (for the first RMD only) of April 1 of the following year. Starting in 2020, the age has increased to 72. Those wondering which rule and age applies to their particular situation can use the following:
‐ If you were born before 07/01/1949, your RMDs are based on age 70 ½, not age 72.
‐ If you were born after 06/30/1949, your RMDs will be based on age 72.
Increase of Auto‐Escalation Limits to 15%
The current auto‐escalation limit for Qualified Automatic Contribution Arrangement (QACA) plans caps employeendeferrals at 10% of a participant’s compensation. However, that limit now allows QACA plans to increase deferrals to 15% of a participant’s compensation. Long used as a tactic to ease into savings without experiencing substantial lifestyle changes, the change allows participants to save greater amounts without having to elect a higher salary deduction limit.
Penalty‐Free Withdrawals for Birth/Adoption
Deciding between near‐term expenses like birth and adoption costs or saving in a company retirement plan is a real challenge for younger plan participants. However, the new law creates a new IRC Section 72(t) waiver allowing participants to withdraw up to $5,000 for expenses related to the birth or adoption of a child. Note, this does not apply when adopting the child of a spouse
If you’re interested in discussing this topic further or about other retirement plan options for your business, please reach out to our Sales and Marketing Team. Their contact information has been listed below:
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