Will Small Business Retirement Plan Rules Affect Your Firm?

The late 2022 Consolidated Appropriations Act includes another new law: SECURE Act 2.0, which has over 100 retirement plan provisions. Many provisions “encourage” small businesses to create or expand retirement plans. Here are the highlights of changes in effect for 2023.

Start-up credit. Firms with up to 50 employees can now receive an annual tax credit of 100% (was 50%) of the costs of starting and administering retirement plans. The credit can be taken annually for up to 3 years and there is now no dollar cap on the credit. The credit is also available to small employers that join a multi-employer pension plan and is retroactive to 2019, regardless of how long the multi-employer plan has been in existence.

Employer contribution credit. Firms with up to 50 employees can now get an additional credit of up to $1,000 per employee for employer contributions to a new retirement plan. The credit: 100% of the employer contribution in the plan’s 1st and 2nd year, 75% in the 3rd year, 50% in the 4th year, and 25% in the 5th year. There is no credit after that. Firms with 51-100 employees get a lower credit.

SIMPLE and SEP plans. These plans can now accept Roth-type contributions.

Matching contributions. The new law gives employers the option of allowing employees to elect to have matching contributions be either Roth-type or pre-tax— even if previous matching contributions were made to traditional, pre-tax accounts. However, employers do not have to offer employees this option.

Sole proprietor deferral deadlines. Sole proprietors and single-member LLCs can now set up a solo 401(k) after the close of the taxable year but before that year’s tax return deadline and treat the new plan as being set up the previous year. Contributions to the plan received by the tax return filing deadline can be treated as made the previous year.

Hardship withdrawals. Employees can now get financial hardship distributions from retirement plans without the 10% early distribution penalty without anyone’s approval by self-certifying the requirements for financial hardship. Previously these distributions required applying to the plan’s administrators, who would determine whether the request qualified for financial hardship under the tax code.

Employee incentives. Previously, employers could not offer financial incentives to induce employees to participate in retirement plans. Under the new law, employers can offer de minimis financial incentives to join their retirement plan. Incentives must be low-cost, such as a low-dollar gift card, and cannot be paid for with retirement plan assets.

Employees who are military spouses. Small employers can now receive an extra tax credit if their defined contribution retirement plan makes it easier for their military spouse employees to participate and benefit from matching contributions.

Do you have questions about a retirement plan for your employees or how your business can benefit? Call us today at (720) 949-7733. And be sure to read our Special Alert related to Colorado Legislation.