The Secure Act 2.0: How It Impacts Employers
The Secure Act 2.0 is now law and its features are impacting employers everywhere. Inside the new bill are dozens of retirement policy changes set to go into effect over the next decade. However, as an employer, you’ll be experiencing many of them now and in the near future.
In this article, you’ll be exposed to how the legislation impacts your retirement, and that of your employees. You’ll also be given actionable steps you can take to help navigate the new retirement landscape.
Table of Contents
- General Retirement Plan Changes
- Changes Impacting Newly Created Business Retirement Plans
- New Retirement Provisions For Your Employees
General Retirement Plan Changes
1. RMD Age Increase & Penalty Reduction
The required minimum distribution (RMD) age for applicable retirement withdrawals (from IRAs and 401ks) has risen to 73, and is set to increase again to 75 in 2033. The penalty for not taking these mandatory retirement distributions has also decreased from 50% to 25%.
2. Retirement Fund Tracking
In 2025, retirement plan participants and beneficiaries can use an online database to locate their former employer’s retirement plan administrators and claim any forgotten funds. Plan administrators will be required to submit their information to the Department of Labor for inclusion in the database.
3. 529 to Roth IRA Rollovers
Starting in 2024, you can roll over a 529 account open for over 15 years into a Roth IRA for the plan’s beneficiary. This eliminates the previous penalty for withdrawals made for non-educational purposes and allows a rollover of up to $35,000 from your 529 account to a Roth IRA for your loved ones or even yourself.
4. Catch-Up Contributions Changes
In 2024, catch-up contributions to IRAs from those age 50 or older will be adjusted for inflation. This could potentially result in an increase in catch-up contribution limits every year. Additionally, starting in 2026, individuals between ages 60-63 will be able to make catch-up contributions up to $10,000 with adjustments for inflation to their IRA.
Lastly, starting in 2025, individuals between ages 60-63 will also be able to contribute up to $10,000 to their workplace retirement plan, with those contributions adjusted for inflation as well. However, those earning $145,000 or more must make all catch-up contributions with after-tax money to a Roth account.
Changes Impacting Newly Created Business Retirement Plans
1. Auto-Enrollment for New Retirement Plans
If your company’s retirement plan is created after Dec. 29, 2022 it will have to follow new auto-enrollment rules. You will be required to enroll employees in your plan at a minimum of 3% and a maximum of 10%, starting in 2025. Exceptions to this rule will include new businesses in operation for less than 3 years and businesses with 10 or fewer employees.
2. Auto-Escalation for New Retirement Plans
If your company’s retirement is created after Dec. 29, 2022 it will also have to follow new escalation rules starting in 2025, with contribution percentages automatically increasing by 1% each new plan year after an employee’s full year of service, until reaching a minimum of 10%. Again, exceptions apply to new businesses operating less than 3 years and businesses with 10 or fewer employees.
3. New Starter 401(k) & 403(b) Plans
The Secure Act 2.0 offers “Starter K” plans to business owners without retirement plans, with salary deferral limits matching those of IRAs and additional catch-up contributions for participants age 50 or older.
4. Increased Tax Credit for New Retirement Plans
Businesses with fewer than 100 employees may currently qualify for a start-up tax credit of up to 50% of their retirement plan’s administrative expenses, capped at $5,000 for 3 years. The Secure Act 2.0 increases the credit to 100% of eligible start-up expenses for businesses with 50 or fewer employees and provides an additional credit of up to $1,000 per employee for qualifying employer contributions in businesses with 50 or fewer employees.
New Retirement Provisions For Your Employees
1. Emergency Savings Support
Employers can now help establish an emergency fund by automatically enrolling employees into a designated emergency savings account. These accounts have a cap of $2,500 (or lower) and allow for 4 withdrawals each year that are free of taxes and penalties.
2. Emergency Withdrawal Allowances
Your employees can now make a one-time, penalty-free withdrawal of up to $1,000 per year from their retirement account, but only for emergency expenses.
3. Auto-Transfer of Retirement Accounts
Your employees’ retirement accounts can now be automatically transferred to a new employer’s plan, as long as the amount is not greater than $5,000.
4. New Employer Matching Options
a. Roth Matches: Employers can now offer vested matches to their employees’ Roth retirement accounts, which were previously made with pre-tax dollars. With this change, matches can be made on an after-tax basis, allowing for tax-free growth and withdrawals in retirement.
b. Emergency Savings: Employer contributions to emergency savings accounts may also be matched, depending on plan guidelines.
C. Student Loan Repayment Assistance: Employers can now support their employees in paying off student loans by matching their loan repayments with contributions to their retirement accounts. For example, if an employer offers a 30% match to 401(k) accounts, they could contribute $150 to an employee’s retirement plan when the employee makes a $500 student loan repayment.
How Fischer Retirement Services Can Help
At Fischer Retirement Services it’s our mission to help employers make the most of their retirement, and that of their employees. That’s why we’re here to help you take full benefit of new opportunities provided by the Secure Act 2.0.
If you’re interested to learn more about the new changes to retirement, or how you can take advantage of them as an employer, don’t hesitate to reach out.
You can call us directly at our Westlake office at (805) 418-7686, or our San Clemente office at (949) 433-7768. Feel free to also schedule a complimentary consultation at a time that works best for you.
This commentary reflects the personal opinions, viewpoints and analyses of the Fischer Investment Strategies, LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Fischer Investment Strategies, LLC or performance returns of any Fischer Investment Strategies, LLC client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Fischer Investment Strategies, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
Ted Fischer is a Fee-Only Certified Financial Planner® & fiduciary, and the founder of Fischer Investment Strategies.
Drawing from more than 25 years of experience in the financial services industry, Ted's expertise includes retirement planning, investment analysis, tax planning, estate planning, and insurance.
Ted has an extensive academic background. He received his Certified Financial Planning (CFP®) designation from UCLA in 2011. He became a Qualified Plan Financial Consultant (QPFC®) and an Accredited Investment Fiduciary (AIF®). Ted has a Bachelor of Science in Marketing, with a minor in Finance, from San Diego State University.