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The SECURE Act: What It Is and How It Changed Retirement Rules

The SECURE Act What It Is and How It Changed Retirement Rules

Do you know what SECURE law is and how it affects your small business and the retirement of your employees?

  • The SECURE Act creates a safe haven of trust for employers to expand employee retirement eligibility.
  • The law creates a dual eligibility for part-time employees to participate in retirement plans.
  • The bill is paid for through strategic offsets in the Congressional budget.
  • This article is for business owners interested in expanding retirement eligibility for their employees.– The Establishing Every Community Retirement Enhancement Act of 2019, or SECURE Act, was signed in 2019. The main purpose of the measure was to expand access to employee retirement benefits and savings plans to reduce the number of American retirees falling into poverty. once living on a fixed income. The SECURE Act was part of a broader legislative effort to implement reforms of employee pension plan laws that have been in effect since 2006.

This guide provides an overview of the SECURE Act and what you need to know about its impact on your business.

How the SECURE law expands access to retirement for employees

Key provisions of the SECURE Act greatly expand access to employee retirement plans and trust protections for small businesses that extend those plans to their employees. The SECURE Act was designed to encourage greater profit sharing by small businesses and help more Americans save for retirement. The law opened eligibility for part-time workers to participate in 401 (k) plans and also allowed Americans to contribute to retirement accounts later in life.

The SECURE law offers the following provisions that improve employee eligibility for certain retirement benefits:

  • It allows employers to automatically escalate employee contributions from 10% to 15%.
  • It implements rules that help long-term part-time workers participate in 401(k) plans by requiring employers that provide the benefit to have “a dual eligibility requirement under which an employee must complete either a one year of service requirement (with the 1,000-hour rule) or three consecutive years of service where the employee completes at least 500 hours of service.”
  • It gives a larger tax credit to small businesses that set up retirement plans for employees, making the process more affordable.
  • It provides retirement-plan holders an easier way to transfer lifetime income to another employer-sponsored retirement plan or IRA.
  • It lets individuals contribute to a traditional IRA beyond the current cutoff of 70.5 years old. Under the SECURE Act, they can continue to contribute until they are 72 years old.
  • It helps people with taxable, non-tuition fellowship and stipend payments to save for retirement based on that income.
  • It blocks qualified employer plans from making loans through credit cards, ensuring that “plan loans are not used for routine or small purchases, thereby preserving retirement savings.”
  • It gives employers a fiduciary safe harbor when selecting a lifetime income provider. Under those protections, employers have a set of guidelines that, if followed, can shield them from liability.

How the SECURE Act impacts small businesses

The changes in the SECURE Act have significant impacts on small businesses. The act is designed to help Americans contribute to private retirement accounts, and to do so for longer.

Here are some of the SECURE Act’s impacts on small businesses:

  • It helps employers raise participation rates in 401(k) plans by opening eligibility to part-time workers.
  • It gives small businesses a way to increase participant contributions by escalating contributions from 10% to 15%.
  • It spurs small businesses to start offering retirement benefits or expand their retirement plan offerings by providing bigger tax credits to companies that offer benefits.
  • It helps employers meet safe harbor thresholds, allowing business owners to maximize contributions to their own accounts.
  • It makes retirement plan assets less accessible to pay routine small business expenses.
  • It grants employers increased protection to shield them from liability.

These provisions facilitate the hiring of employees by employers, especially part-time workers. The law gives employers more tools to encourage employee plan participation and increase assets held in retirement accounts. This, in turn, makes it easier for companies to receive personalized service and access better wealth management solutions.

Consolidated Act Additional appropriations for 2020

Since the passing of the SECURE Act, the world has continued to change. 2020 saw not only the spread of COVID-19 around the world (and the securing of economic crises) and the change of presidential administrations after a tumultuous election, but also more legislation affecting small businesses. One notable element is the Additional Consolidated Appropriations Act (FCAA) of 2020. The FCAA was passed in December 2019 to finance the federal government during fiscal year 2020. Among other things, the law included 426 billion dollars of tax breaks for individuals and businesses through a series of changes to the US tax number.

Here are some changes made by the FCAA:

  • Removing the age limit for IRA contributions
  • Adding childbirth as an exemption for early retirement plan withdrawal penalties
  • Increasing the age for required minimum distributions from retirement plans from 70.5 to 72

Of course, many of these changes pale in comparison to the global effects of the COVID-19 pandemic, widespread shutdowns, global supply chain issues, and rising costs of living. Still, these are sweeping changes that significantly impact Americans’ ability to save and prepare for retirement.

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