Review key changes related to automatic enrollment, retirement plan access and more.
Passed in December, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 has wide-reaching impacts on retirement savings and estate planning for many Americans.
Below, review some of the new law’s key components related to business ownership. Your advisor can help provide more detail and discuss opportunities related to establishing or adjusting your business’ retirement plan.
1. It created a tax credit for automatic enrollment.
The SECURE Act created a new $500 tax credit for small businesses that use an automatic enrollment arrangement in their retirement plans. Automatic enrollment increases plan participation.
2. It increased the tax credit for establishing a retirement plan.
Previously, small businesses were eligible for a $500 credit for the startup costs of establishing a retirement plan. The SECURE Act substantially increased that available credit amount – depending on the small business, the potential credit could be as much as $5,000.
3. It required a lifetime income disclosure for defined contribution plans.
The new law requires that defined contribution plans deliver a lifetime income disclosure to participants at least once every 12 months. This lifetime income disclosure would essentially show how much income the lump sum balance in the retirement account could generate. The methodology for calculating lifetime income is still being evaluated.
4. It increased annuity options inside retirement plans.
Today, many 401(k)s avoid annuities, in part because of liability concerns. The new rules ease this concern, potentially paving the way for more annuities to be offered inside of retirement plans.
5. It increased small employer access to retirement plans.
Currently, many small employers offer no retirement savings. Effective January 1, 2021, the SECURE Act reduces fiduciary liability concern and cost among small employers with multiple employer plans (MEP) or pooled employer plans (PEP), eliminating the “bad apple” rule and making it easier for them to set up and offer 401(k) plans.
The content provided herein is based on Raymond James’ interpretation of the SECURE Act and is not intended to be legal advice or provide a tax opinion. This document is a summary only and not meant to represent all provisions within the SECURE Act.