Entering in to the third week of 2020 many individuals and businesses are beginning to learn how the SECURE Act, signed on December 20th by President Trump will be impacting their retirement and qualified accounts.
While there are both pro’s and con’s, today I’m going to outline the more significant changes that impact small business owners.
The SECURE Act, which stands for Setting Every Community Up for Retirement Enhancement Act was brought together in an effort to strengthen retirement savings and increase access to retirement plans.
If you’re a small business owner and do not currently have an established retirement plan, this could be the year to really consider your options. It’s important to consult with your tax professional and work with a specialist before establishing a plan. At Maven Group Investment Strategies we are part of a dedicated Retirement Plan Consulting Program to focus on this area of expertise.
Here are a few changes that you need to be aware of:
- Startup Tax Credit for Small Employer Plans
Prior to the SECURE Act being signed there was a cap of $500 available in tax credits for new plans. That will increase up to $5,000 in an effort to provide more incentives for new plans to be established and help make them more affordable.
2. Additional $500 New Tax Credit for Adopting Automatic Enrollment
Auto-enrollment is a feature that requires employees of a plan to opt-out of the plan as opposed to the more common, opt-in option. To strengthen retirement savings across the nation small business owners can received the additional $500 tax credit for three years for plans that add auto-enrollment.
3. Changes to Long-Term Part-Time Employee Eligibility
Prior to the Secure Act, part-time workers could be excluded if they haven’t worked 1,000 hours in a 12-month eligibility period. Moving forward, employees who have completed at least 500 hours of service each year for three consecutive years and are age 21 or older will be eligible to participate.
4. Fiduciary Safe Harbor for Selecting Annuity Providers
The Secure Act creates a safe harbor that employers can use when choosing an annuity provider to provide annuity distributions under a defined contribution plan. The safe harbor protects plan fiduciaries from liability for any losses that may result to the participant or beneficiary due to an insurance company’s inability, in the future, to satisfy it’s financial obligations under the terms of the contract.
If you’re curious to learn how the SECURE act impacts your business directly or interested in understanding more of the details of the tax credit please don’t hesitate to reach out to our office at, 562-246-5363. We are always happy to provide complimentary consultations and simply help the community better understand the options available.
Stay tuned for next weeks blog on how the SECURE act effects individuals.
The items highlighted above are only a few of the change with the SECURE act but ones that, in our opinion, more greatly impact small business owners. Stay tuned for next week’s article that will discuss how the SECURE act impacts you as an individual.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal professional.