What you need to know about the SECURE Act 2.0 

Author: Aaron Wilson

The SECURE Act 2.0 is a recently passed piece of legislation with many benefits aimed at helping to make it easier for Americans to start saving for retirement.

The original SECURE (Setting Every Community Up for Retirement Enhancement) Act was first signed into law at the end of 2019.  It enacted several adjustments to the retirement system in the United States but lacked some important comprehensive solutions.¹

The SECURE Act 2.0 was passed at the end of 2022 and included a more robust set of provisions aimed specifically at helping small businesses launch retirement benefits within their companies.

There are over 90 provisions within the SECURE Act 2.0. Overall, the act promotes saving earlier, boosts incentives for small businesses to offer retirement plans, and offers more flexibility in saving for those who are nearing retirement age.¹

In this blog post we’ll cover some of the most relevant provisions related to small business tax incentives.

Startup tax credits¹

SECURE Act 2.0 enhances the tax credit for small businesses with a workforce of up to 50 employees. This law raises the tax credit for these small businesses to 100% of the initial plan start-up costs (it was previously only 50%). This credit is capped $5,000 annually per employer for the initial three years, totaling a potential $15,000. 

Meanwhile, businesses with 51 to 100 employees continue to receive the original SECURE Act tax credits. These cover 50% of administrative costs, with an annual cap of $5,000 per employer for three years (totaling up to $15,000).

These tax credits can effectively make launching a retirement plan no-cost for the small business.

Employer contribution tax credits¹

Small businesses with up to 50 employees are entitled to an additional tax credit, calculated as a percentage of employer contributions, capped at $1,000 per employee for those earning less than $100,000 in the previous year. 

Employers who have 51-100 employees are eligible for a credit phase-in, determined as follows:

- A percentage increase of 2% points for each employee beyond 50 in the preceding taxable year.

- The resulting figure, multiplied by:

• 100% in the first and second years
• 75% in the third year
• 50% in the fourth year
• 25% in the fifth year

By putting more money into their employees’ savings, businesses can save even more on their taxes each year.

Auto-enrollment tax credit¹

The original SECURE Act implemented a tax credit for businesses that elected to set up their plans with auto-enrollment. 

Auto-enrollment allows an employer to automatically deduct retirement deferrals from an employee's wages at a percentage specified in the plan document unless the employee opts out of participation or changes their election to an amount of their choosing.

This tax credit is maintained with the SECURE Act 2.0, amounting to $500 per year for the first three years of electing auto-enrollment.

In 2024, auto-enrollment is not mandatory - although it is an excellent tool in helping employees save for retirement. However, the SECURE Act 2.0 dictates that starting in 2025, new plans that started after the law was enacted (12/29/22) will be required to offer auto-enrollment. 

Why businesses should offer a retirement plan

Beyond the specific tax credits and incentives, why should you offer a retirement plan?

Many businesses shy away from the benefit due to the perceived cost and administrative burden.  But the benefits may outweigh the costs and finding the right retirement provider can help you decrease those burdens and costs.

There are numerous benefits to offering retirement benefits as a small business, including:

• Employee recruitment & retention
• Compliance with state retirement mandates
• Setting up yourself & your clients for financial security

Recruitment & retention

One of the biggest benefits of offering retirement is the positive impact it has on employee recruitment and retention. A 2022 study from Gallup revealed that more U.S. employees value pay and benefits when accepting a new job. Additionally, retirement benefits are the second most wanted benefit after health insurance.

Offering retirement benefits can help a small business stand out from the crowd when interviewing and hiring employees and help to keep the employees they already have around longer.

State retirement mandates²

State governments are requiring businesses to offer retirement benefits or face fines for noncompliance.

Generally, states with active legislation in place are offering a state-run IRA that businesses can opt-in to comply. However, businesses are able to offer a private qualifying plan (such as a 401(k) or 403(b)) instead of the state-run program. There are pros and cons to each type of plan and businesses should do their research, or reach out to someone who can help them better understand, before deciding which is the right choice for them. 

Details and eligibility requirements vary by state, but business owners should be aware of the status of the mandate and upcoming deadlines in their area.

Saving for retirement

As a small business owner, one of the greatest benefits of offering retirement is saving for your own retirement. Launching a 401(k) will not only help your employees save for a more stable financial future — but it will also help the owner! By contributing to the retirement plan, business owners benefit from the same tax advantages of stashing away money for a fruitful retirement.

The SECURE Act 2.0 is an ongoing piece of legislation that includes many other interesting provisions launching in 2024 and 2025. Some of those include employer matching for student loan repayment, emergency expense withdrawals, and more.³ To dig deeper into additional provisions of the SECURE Act 2.0 visit this link.

¹ SECURE Act 2.0: Changes to retirement planning (2023). Human Interest. January 24, 2024.

² What is a state-sponsored retirement plan?" Human Interest. As of January 16, 2024. Subject to change.

Human Interest Inc. is an affordable, full-service 401(k) and 403(b) provider that seeks to make it easy for small and medium-sized businesses to assist their employees with investing for retirement. For more information, please visit humaninterest.com.

³ The information provided is for educational purposes only. SECURE Act 2.0 provisions in 2024 are optional and each recordkeeper will determine if and when they can accommodate and administer the new feature.

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