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By Cody Waight - February 2020
We know you're busy and have a business to run, so here's a brief recap of how the SECURE Act might affect your company's retirement plan.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act was designed to strengthen Americans' security in retirement. While individuals will see impacts from IRAs to 529s to birth and adoption expenses, the legislation also contains several provisions that apply directly to employer-sponsored retirement plans.
Bottom line: Though some details and timing are not finalized, the new rules will potentially reduce costs, allow for easier plan administration and provide more opportunities and choices for you and your employees.
The SECURE Act increases the existing tax credit for new retirement plan startups to $5,000 per year. It also allows for an additional tax credit of up to $500 to employers who set up a new 401(k) or SIMPLE IRA plan (or modify an existing plan) that automatically enrolls employees.
The new rules expand eligibility to part-timers, although plans may still require a minimum age, a minimum number of annual hours worked and years of service to qualify.
This change may still be a long way off for part-time workers, however, as employers aren't required to start tracking those minimum requirements until 2021.
The SECURE Act increases the cap for plans with a qualified automatic contribution arrangement (QACA) to 15% of an employee's wages. Currently, plans can't auto-enroll employee contributions above 10%. The new cap is effective after the employee's first year of participation in the plan.
Sponsors now have more flexibility when setting up plans. Those who want to make a profit-sharing contribution can now establish a plan up until their tax filing deadline, plus extensions, starting with tax-year 2020. The previous deadline was Dec. 31.
Certain non-elective safe harbor 401(k)s no longer have to provide an annual safe harbor notice to employees. Plans may also amend and switch from matching to non-elective contributions if they do so at least 30 days before the plan year-end, or if they contribute at least 4%.
The required minimum distribution age (RMD) age increases to 72 for participants who turn 70½ after Dec. 31, 2019. It's important to note that your participants may be adhering to different RMD rules; those born before July 1, 1949, will still take RMDs under the old 70½ rule.
Previously, the IRS penalty for failing to file certain tax forms was $25 per day, up to a $15,000 per plan year limit. Going forward, the penalty increases to $250 per day, up to a $150,000 per plan year limit.
Parents can now take a penalty-free a distribution of up to $5,000 from retirement accounts for expenses associated with birth or adoption.
But the SECURE Act doesn't lay out specific rules for distributions from employer-sponsored plans—as with other provisions, we're waiting for more guidance.
For more details on timing or planned implementation of the provisions, visit irs.gov or talk to your CPA.
Want to know more about how the SECURE Act rules might affect your plan? Call a Business Retirement Specialist today at 1-800-345-3533.
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This information is for educational purposes only and is not intended as investment or tax advice.
Please consult your tax advisor for more detailed information or for advice regarding your individual situation.
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