Secure 2.0 Act: A Small Business Boost for Employee Savings

Businesses that help their employees save money by offering retirement plans or 401(k)s get a boost from the government.

Many sections in the SECURE 2.0 Act are intended to assist small business owners in providing more savings options for their employees.

The Federal Reserve estimates that 36% of Americans would be unable to meet a $400 emergency bill. According to an Ascent report, the typical American has only $4.5 thousand stashed away.

If you’re here reading this, you’re probably not one of those people. If you run a small firm, you might have investors that fit that bill.

We support efforts to increase people’s opportunities to put money aside, particularly for those who own smaller enterprises. According to the 2024 PwC Employee Financial Wellbeing Survey, employees’ attendance and output on the job are just two of many areas negatively affected by concern over money.

According to research by ADP, a provider of human resources software and services, stress over money reduces productivity and increases the expense of necessary medical treatment.

Increasing your employees’ savings may or may not ease their financial concerns, but it certainly won’t hurt to try. There are several helpful features in the SECURE 2.0 Act; while some may claim that the devil is in the details, they are opportunities for strategic planning. This is especially important to remember if you are a business owner trying to encourage your staff to put away more money.

Knowing the SECURE 2.0 Act and what it may mean for you as a small business owner is beneficial, but ultimately, planning is about you, your position, and the outcomes you seek. Contact your financial advisor to review what these clauses entail for your unique situation, as is my firm policy.

Opportunities to Reduce Costs Have Increased

The SECURE 2.0 Act provides numerous new savings avenues to increase the typical American’s dismal savings rates.

Initial 401(k) in contrast to traditional 401(k) plans, which require matching contributions from their employees, this plan requires no funding from the company itself. This entry-level 401(k) allows employees to begin saving for retirement in a tax-advantaged manner by deferring a portion of their salary up to the IRA contribution limitations.

It remains to be seen if this catches on. Most under-savers are those who either need to earn more or have access to sufficient retirement savings vehicles. This is an effort to facilitate the establishment of less restrictive, less risky, and cheaper plans for small firms.

Parity for Saver. In exchange for the tax credit we currently receive, the government will contribute up to $1,000 to each individual’s retirement account. The current tax credit will be transferred to retirement accounts to boost retirement savings. But, contributing to a retirement account is required to qualify for the match.

New retirement accounts are now required to enroll a more significant number of people automatically.

Employers wanting to set up a 401(k) for their staff must ensure that workers are automatically enrolled in the plan and that their salary deferral is gradually increased. These measures have been demonstrated to enhance retirement savings, which could help your employees in the long run.

Increased deductions for retirement plan creation by small businesses.

As a bonus, this can boost the credit for the administrative costs of establishing a new retirement plan from 50% to 100%, which is especially useful for business owners with less than 100 employees.

Improvements to Retirement Savings Contributions

Contributions to an Individual Retirement Account (IRA) or another qualified retirement plan are subject to a separate set of rules you should be aware of.

 Some examples:

Indexing the IRA catch-up contribution cap to account for rising prices. After age 50, if we are still employed, or our spouse is gainfully employed, we can contribute an extra $1,000 to our IRAs. Before, this $1,000 catch-up provision was not adjusted for inflation, but it will now be.

Financial incentives to join a retirement plan. A little reward, like a gift card, can be offered to encourage workers to enroll in a retirement savings program.

Seek the Advice of Experts

More than a hundred clauses are altering the retirement savings regulations in this measure. Learning the rules could take a long time, so pooling your resources is wise.

Suppose you want to make the best choices for your company. In that case, discussing these considerations with a reliable financial expert familiar with the applicable regulations is a good idea.