SECURE Act 2.0 | Expanded Tax Credits & More

The SECURE Act of 2019 gave employers new incentives to offer retirement plans. Now, the SECURE Act 2.0 promises to deliver even more. Passed by Congress at the end of 2022, the SECURE Act 2.0 is a new and improved version of the previous bill.

So, what’s inside the new bill? How will it encourage employers to offer plans to employees? And, how will it improve retirement savings for workers nationwide? Read on to find out. 

SECURE Act 2.0: What’s new?

SECURE Act 2.0, also known as Securing a Strong Retirement Act of 2022, aims to expand retirement savings. The president signed the bill into law on December 29, 2022. Many provisions took effect January 1, 2023. Other provisions won’t take effect until later years. 

Again, SECURE Act 2.0 is a continuation of the SECURE Act of 2019. Among other things, the SECURE Act of 2019:

1. Expanded 401(k) tax credits for small business owners 
2. Raised the required minimum distribution age
3. Removed age contribution restrictions
4. Extended retirement plans to part-time employees

So, how does SECURE Act 2.0 expand on the 2019 bill and encourage employers to offer retirement plans and employees to sign up?

Here are some of the big changes you—and your employees—may be interested in. 

1. Expanded tax credit opportunities for small businesses

Need a reason to offer employees retirement plans besides retention? SECURE Act 2.0 gives small employers several—in the form of tax credit opportunities. 

SECURE Act 2.0 provides tax credits for:

• Administrative costs 
• Contribution costs
• Military spouse coverage 

Administrative costs 

The SECURE Act of 2019 gave businesses up to 100 employees a tax credit of 50% of administrative costs, capped at $5,000 per year. 

SECURE Act 2.0 takes things a little further. Employers with 50 or fewer employees can now claim a 100% tax credit to cover administrative costs up to $5,000 of establishing a retirement plan. 

Employers with 51 – 100 employees can still claim a tax credit that covers 50% of administrative costs up to $5,000.

Contribution costs 

Businesses with up to 100 employees may be eligible for a tax credit if they contribute to an employee’s retirement savings. 

If you have 50 or fewer employees, you can claim a credit to cover up to $1,000 of contributions per employee. 

The tax credit limit is phased down over five years and for employers with more than 50 employees.

Military spouse coverage 

Small employers with fewer than 100 employees can also receive a credit of up to $500 for offering certain retirement plans to military spouses. 

2. Auto-enrollment mandate

The SECURE Act of 2019 offered additional tax credits to small employers who included automatic enrollment in their retirement plans. SECURE Act 2.0 now requires most businesses with new defined contribution plans to automatically enroll eligible employees. 

Under the auto-enrollment mandate, employers must enroll eligible employees at a rate of at least 3%, but not more than 10%. After the first year, the employee’s contribution rate increases by 1% each year, up to at least 10% but not more than 15%. 

Employees can opt out or choose a different percentage of their wages to contribute.

The auto-enrollment mandate does not apply to all businesses. For example, there are exceptions for new businesses operating less than three years and small businesses with 10 or fewer employees. 

3. Required minimum distribution age raised 

Retirement plans require account holders to receive distributions from their accounts when they turn a certain age. The minimum amount someone must withdraw from their account annually is known as the required minimum distribution (RMD). 

The SECURE Act of 2019 raised the required minimum distribution age from 70.5 to 72. And now, SECURE Act 2.0 raised it again—and will continue to raise it.

Thanks to the SECURE Act 2.0, here are the required minimum distribution ages by year:

• 73 years old: Beginning January 1, 2023
• 74 years old: Beginning January 1, 2030
• 75 years old: Beginning January 1, 2033

4. Student loan payment match

Do your employees have student loans? Are their student loan payments preventing them from starting a retirement fund? Not anymore. 

Beginning in 2024, you can make matching retirement contributions for qualified student loan payments your employees make, up to a limit. 

5. Roth account employer match 

SECURE Act 2.0 also lets employers make matching contributions to Roth accounts. Employers can give employees the option to choose that part or all of their matching contributions be treated as Roth contributions. 

However, don’t exclude these contributions from the employee’s gross income.  

SECURE Act 2.0 summary

Retirement savings have gotten loads of attention in recent years. Here’s a snapshot of some of the biggest changes SECURE Act 2.0 is bringing:

• Employers with 50 or fewer employees can claim a 100% tax credit of administrative costs up to $5,000
• Businesses with 100 or fewer employees can claim a credit to cover up to $1,000 of contributions per employee
• Most businesses with new defined contribution plans must automatically enroll employees at a contribution rate of at least 3% (no more than 10%)
• The required minimum distribution age is rising (to 73 years beginning 2023 and 75 years beginning 2033)
• Employers can choose to make a retirement contribution matching student loan payments beginning in 2024
• Employers can make matching contributions to Roth accounts (but can’t be excluded from the employee’s gross pay)

There are several other provisions in the SECURE Act 2.0. For more information on Securing a Strong Retirement Act of 2022, you can check out the bill here.

Looking to start a new 401(k) plan? Patriot has partnered with Vestwell, a retirement platform trusted by small businesses across all 50 states, to offer payroll with seamless 401(k) integration. You can sign up here to get started or learn more!

This is not intended as legal advice; for more information, please click here.