2 Ways Secure Act 2.0 Helps Small Businesses
Secure Act 2.0’s Starter 401(k)
Although anyone can get an IRA, very few do. Included in the Secure Act 2.0 package is a proposed Starter 401(k) similar to an IRA. The contribution limit is the same as that of an IRA — smaller than the current 401(k) contribution limit — and the plan does not allow employer matching contributions. Although no match is allowed, the benefit is the removal of nondiscrimination testing, so even the smallest business can offer something to employees.
Overall, this is a great entry point for micro-sized businesses, even though I think they should have higher contribution limits.
Tax Benefits
Another upside of the Secure Act 2.0 for small businesses is expanded tax benefits. Today, companies with less than 50 employees get a tax credit equal to 50% of administrative costs, capped at $5,000 annually, when they start a retirement plan. Under the Secure Act 2.0, however, the 50% would be increased to 100%, and businesses with up to 100 employees would qualify.
In addition, the bill would give small employers a tax credit of up to $1,000 per employee in the first year of a defined contribution plan, phased out over five years.
Meeting the Demands of a Knowledge-Hungry Generation
The Secure Act 2.0 package, if passed, would certainly be vital progress and a boon for Americans saving for retirement. Retirement reform can’t come at a better time, with just over a decade until the trust funds behind Social Security are expected to run out of money, leaving beneficiaries with a 20% cut to what they’re owed if nothing is done to fix it.
Moreover, technology is moving in a way where people are learning more about what it means to save and what it means to put money away for retirement. Their first interaction, or their first step toward seeking more knowledge, is often when they start working for a business with a retirement plan. Because of this, we need more legislation that gives workers in businesses of all sizes the freedom to save for retirement.
