The SAFE 2.0 Act includes several provisions to help small business owners increase opportunities for their employees to save more.
According to the Federal Reserve, 36 percent of Americans cannot cover $400 in emergency expenses (Opens in a new tab). and research by Ascent (Opens in a new tab) They found that the average American’s savings account is only $4,500.
If you’re reading this article, that’s probably not you. But if you’re a small business owner, you may have stakeholders who fit that description.
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Expanding the ways people can save is a good thing we want to see happen – especially if you’re a small business owner. 2022 PwC Employee Financial Security Survey (Opens in a new tab) Financial stress and financial stress affect many aspects of employees’ lives, including their productivity and workplace attendance.
HR Software Services Company ADP (Opens in a new tab) In addition to lower productivity, financial stress also results in higher health care costs, he reports.
While saving more isn’t guaranteed to reduce your employees’ financial worries, it doesn’t hurt to try. There are many helpful provisions in the SECURE 2.0 Act, and people like to say that the devil is in the details, I want to say that the planning opportunities are in the details. This is especially true if you’re a small business owner looking to help your employees save more.
While planning always comes down to who you are, it’s important to know your unique situation and what goals you want to achieve, the provisions in the Secure 2.0 Act, and what it means as a small business owner. As I always recommend, talk to your financial professional to discuss what these provisions mean for your particular situation.
Expanded savings opportunities
To address the low savings rate among average Americans, the Secure 2.0 Act includes a variety of expanded savings opportunities, including:
Starter 401(k). This is a simplified version of a 401(k) that companies can set up without putting up their own money. People can use this starter 401(k) to defer salary up to the IRA limit and save for retirement in a more tax-efficient way.
Whether this will take off is another question. Most people who don’t have enough savings either don’t earn enough or don’t have access to an adequate retirement savings vehicle. He tries to do that. Simple For small businesses to develop plans with fewer restrictions, less liability and less expense.
A thrifty match. That’s up to $1,000 in savings from the government going into an individual retirement account, similar to the credit we now get at tax time. This is designed to move current tax credits into retirement accounts to encourage more people to save for retirement. But you must save in a retirement account to receive the match.
Mandatory automatic registration for new pension accounts has been extended. If you set up a new 401(k) for your employees, there may be a requirement to set up automatic enrollment for them and a requirement to automatically increase salary deferrals over several years. Studies show that these types of provisions increase savings, which means your employees will be better prepared for retirement.
Enhanced credits for small-business retirement plan setup. This credit for administrative expenses to set up a new retirement plan increases from 50% to 100% in some cases, which is a nice added benefit if you own a small business.
Improved pension contribution changes
Some other provisions to be aware of are related to IRA and other retirement plan contributions. Here are some of them:
IRA holding limits are adjusted for inflation. For IRAs, we are allowed to put an additional $1,000 into these accounts after age 50 as long as we are still working or our spouse has income. That amount isn’t indexed by historical inflation, but that $1,000 offer now accounts for inflation.
Pension plan enrollment incentives. This makes it possible to give your employees a small incentive — like a gift card — to encourage them to sign up for a retirement plan.
Consult a professional
There are more than 100 pension provisions in this bill that would change the rules for retirement savings. Understanding the rules can take years of study, so it’s worth using the resources in this area.
These are some things to discuss with your trusted financial professional who knows the rules well, so you can make the best decisions for your small business.
This article is written and presented by our contributing advisor, not a Kiplinger editorial staff member. You can check advisor records with the SEC. (Opens in a new tab) or with FINRA (Opens in a new tab).