By: Jerry Grady, Partner & National Staffing Practice Leader, UHY Advisors MI, Inc.
The SECURE 2.0 Act is aimed to help taxpayers bolster their retirement savings and help strengthen their long-term financial security. The bill includes provisions to make it easier for small businesses to offer retirement savings plans and provides benefits to offset costs associated with establishing one. Ultimately, the provisions will help employee build retirement savings that can last a lifetime.
The following are key provisions applicable to the staffing industry:
- Expand Roth Contributions
In 2023, Roth Contributions are allowed for SIMPLE and SEP IRAs. Employer contributions and employee deferrals (if allowed) can be designated as Roth. - Increased Catch-Up Contributions
Currently, individuals age 50 or older are allowed to contribute additional funds into qualified retirement plans. Starting in 2025, individuals between the ages of 60 and 63 will be able to contribute the greater of $10,000 or 50% more than the catch-up contribution amount for 2024. Catch-up contributions will be indexed for inflation starting in 2025. IRA catch-up contributions will also be indexed to inflation starting in 2024 for those age 50 or older. - Automatic Enrollment for 401(k) Plans
Starting in 2025, 401(k) plan participants are automatically enrolled in the plan once they are eligible. The requirements are:
a) Initial deferral contribution level of 3% of compensation
b) Each year contributions increase 1% until it reaches 10% - Student Loan Matching Program
Student loan payments can be treated as employee deferrals for purposes of employer match contributions. The is provision is effective for plan years after December 31, 2023. - 529 Plan Rollovers to Roth IRAs
Beginning in 2024, beneficiaries of 529 plans may roll over up to $35,000 during their lifetime to a Roth IRA. The amount rolled over each year is limited by the contribution limit for IRAs. In addition, to be eligible the 529 plan must have been open for more than 15 years. - Additional 10% Penalty Exceptions
In 2023, taxpayers will be eligible to take up to $1,000 penalty free, in the case of financial hardship, from a 401(k) plan or IRA. The taxpayer has the option to repay the distribution within 3 years. No further distributions will be permitted during the repayment period unless the distribution is paid in full. Taxpayers that are victims of domestic abuse are also allowed the lesser of $10,000 or 50% of their account balance without penalty. A similar 3-year repayment period is available as well. Beginning in 2023, taxpayers diagnosed with a terminal illness will also be eligible to take distributions without the 10% penalty applying. - Part-Time Worker Coverage
Long-term part-time workers were provided the ability to participate in a 401(k) plan if they worked at least 500 hours per year with an employer for at least three consecutive years and had met the minimum age requirements (usually 21) under the former SECURE Act of 2019. The new SECURE Act reduces the number of years to two and clarifies that 12-month years before 2021, are not taken into consideration for eligibility or vesting. The reduction in service requirement is effective for plan years beginning after December 31, 2024.
