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Key Points

• SECURE Act 2.0 would extend the period of time for companies to adopt new plans beyond the end of the year deadline for filing a tax return, giving employees more time to cover their employees with a profit-sharing contribution.
• The bill would expand the 401(k) catch-up to $10,000 for individuals who are age 62, 63 or 64 beginning in 2024.
• If you filed a business tax extension, there is still time to open a Defined Benefit or Cash Balance plan under the SECURE Act.

The House recently passed SECURE Act 2.0 and now the bill moves to the Senate and is pending legislation. The new measure is intended to build upon the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 that was passed in December 2019, creating changes aimed at improving retirement security.

Currently, the SECURE Act aims to get people to save more money, improve retirement regulations and reduce costs for employers to set up retirement plans. The upgraded bill would incentivize small businesses to set up employer-sponsored retirement plans. The bill also would extend the period of time for companies to adopt new plans beyond the end of the year deadline for filing a tax return, giving employees more time to cover their employees with a profit-sharing contribution. This would include a Defined Benefit or Cash Balance retirement plan that can help build retirement savings and save big on taxes.

Provisions of SECURE Act 2.0

Here are key highlights of the new measure:

• The business tax credit for plan startup costs would be increased to make setting up retirement plans more affordable for small businesses. The tax credit will increase from the current cap of $500 to up to $5,000 in certain situations.
• Small business owners who use automatic enrollment would receive $500 tax credit for three years for plans that add auto-enrollment of new employees. This requirement would not include businesses with less than 10 employees, or businesses which are less than 3 years in operation.
• Rules and requirements related to qualified nonelective contributions in safe harbor 401(k) plans would be simplified.
• The bill would expand the 401(k) catch-up to $10,000 for individuals who are age 62, 63 or 64 beginning in 2024. Currently, individuals who are 62, 63 and 64 can contribute up to $6,500 annually to a retirement plan but that limit would rise to $10,000.
• Simple Employee Pension plans (SEPS) and Simple IRAs could be designated as Roth IRAs. These contributions could not be excluded from income when tax filing.
• Currently, the age to start making distributions from retirement accounts is 72. In 2022, that would be changed to 73. In 2029 the age would increase to 74 and in 2032 it would increase to 75.