Have you heard of the Setting Every Community Up for Retirement Enhancement Act or “SECURE Act” in recent conversations or on the news? You might wonder how the SECURE Act will impact you and your business since it contains a wide array of tax provisions. This act makes significant changes to the operation of workplace retirement plans, provides expanded opportunities for tax credits and enhances certain benefits for individuals. The goal of the bill is to help companies implement retirement plans while simplifying certain plan rules and permit individuals to contribute to retirement plans longer than previously allowed.
The plan does the following which are benefits for many:
- Extended deadline for adopting new plans – Previous deadlines to adopt new plans was the company’s year-end. Now companies have up to the due date of their return, including extensions to adopt a plan and make employer contributions. Salary deferrals from employees would start the date of adoption.
- Pooled employer plans – The act allows for unrelated employers to group together to offer retirement plans across businesses.
- Longer IRA contribution limits – Repeals the age limit for those with earned income to continue to contribute to their IRAs (used to be 70 ½).
- Enhanced/New tax credit – eligible small employers that implement a qualified retirement plan can be eligible for an enhanced tax credit of up to $5,000 that can be claimed for up to three years; and existing plans can be eligible for a new $500 tax credit for adopting an automatic enrollment feature for their plan (can be claimed for up to three years).
- Increases the starting date for RMDs – individuals must now begin required minimum distributions (RMDs) after attaining age 72 (used to be 70 ½).
- Long-term part-time worker participation – employees working at least 500 hours for three consecutive years are allowed to participate in their employer 401(k) plan.
With all good things, there are bad things:
- The failure to file penalty - increased to the lesser of $400 or 100% of tax due
- The failure to file penalty for retirement plan returns (Form 5500) increased - increased to $105 per day, not to exceed $50,000.
- Elimination of the stretch IRA – Non-spouse beneficiaries will be required to take complete withdrawal of the account balance by the end of the 10th calendar year following the year of the owner’s death.
The elimination of stretch IRA can create twists in existing estate planning. With any new act, be sure to consult your CPA or tax advisor to insure you are following the new rules and taking advantage of the new benefits that are available to you.