Don’t Overlook These Benefits for Your Small Business Plan Clients
Navigating the post-SECURE retirement landscape may seem perplexing to many small business owners and self-employed individuals. That’s where Ascensus can help you help them get back to managing a successful business—not administering a potentially complex retirement plan for themselves or just a few employees.
Below are three of the most popular small business retirement plan options and a breakdown of how the SECURE Act provisions enhanced these plans.
SEP Plans
With a simplified employee pension (SEP) plan, the employer contributes to its employees’ Traditional IRAs. Contributions are discretionary; the employer can decide from year to year whether to make contributions.
SIMPLE IRA Plans
In a savings incentive match plan for employees of small employers (SIMPLE) IRA plan, the employer must contribute to its employees’ SIMPLE IRAs if employees defer their own wages or salary into the plan. Employees contribute through pretax salary deferrals. All employees age 50 and older are eligible for “catch-up” deferral contributions.
Key benefits for both SEP and SIMPLE IRA plans include the following.
Administrative ease
No IRS Form 5500 reporting
No nondiscrimination and top-heavy testing requirements
Start-up tax credit
Owner-Only 401(k) Plans
An owner-only 401(k) plan, or Individual(k)™ plan, is a qualified retirement plan (QRP) designed for businesses with no employees. These plans allow for salary deferrals and discretionary matching and/or profit sharing contributions.
Key benefits include the following.
Simpler plan design and documentation than conventional 401(k) plans
Less administrative expense than conventional 401(k) plans
Significantly higher tax-sheltered contribution limit than SIMPLE IRA plans
Designated Roth account contributions allowed
SECURE Act Changes
The following SECURE Act provisions have some impact on SEP, SIMPLE, and owner-only 401(k) plans.
Delayed Age for Beginning RMDs
One provision that affects all three plan types is the increased age when plan participants generally must begin taking required minimum distributions (RMDs). Instead of 70½, RMDs must begin at age 72 for those who reach age 70½ in 2020 or a later year.
Extended Deadline for Owner-Only 401(k) Establishment
Before 2020, employers wanting to establish a 401(k) or other QRP generally were required to adopt the plan by the end of their business tax year. But attempting to establish a new plan at year-end could cause unwanted stress, leading to hasty decisions and compliance problems. For tax years starting with 2020, employers may establish a QRP by their tax return due date, plus extensions. For example, unincorporated business owners could have until October 15, 2023, to establish a calendar year plan for the 2022 tax year (401(k) deferrals must still be made from compensation that has not yet been received). The intent behind the change is that the new deadline will give business owners greater flexibility and options. This new deadline also aligns with the SEP plan adoption deadline.
Automatic Enrollment Credit
The SECURE Act provides a new tax credit to employers that include an automatic enrollment feature in their new or existing small 401(k) plans (100 or fewer employees) or SIMPLE IRA plans. The maximum annual tax credit is $500 for each of the first three years that the plan is maintained, beginning with the 2020 tax year.
Small Employer Start-Up Credit
The SECURE Act increased the small employer retirement plan startup tax credit from $500 to $5,000 per year, effective January 1, 2020. This tax credit is meant to help cover startup costs for the first three years that the plan is in effect.
Turn to Ascensus for Small Business Plan Support
So what’s the best plan for your small business clients? That’s for them to decide—once they know what plans are available and understand the features and benefits. Ascensus can help your organization navigate the ever-changing IRA and QRP rules and regulations while providing the best service to your clients.
For those clients who are interested in a SEP or SIMPLE IRA plan, Ascensus provides complete IRA administration, operation, and compliance support through our own software, IRAdirect®. If the owner-only 401(k) product is more what your clients are looking for, Ascensus can support your clients’ plans through our Employer Direct Document Service (EDDS).
Individual(k)™ is a trademark of Ascensus, LLC.
