Do You Know How SECURE 2.0 Will Affect Your Manufacturing Company?
Kirsch CPA Group
Mar 16, 2023
The SECURE 2.0 Act, enacted at the end of 2022, expands on the retirement plan improvements made by the Setting Every Community Up for Retirement Enhancement Act of 2019 (the SECURE Act). In general, SECURE 2.0 gives employees the opportunity to save more and save longer for retirement, at a lower tax cost.
In some cases, the new law imposes additional requirements on manufacturers (and other employers) that may add to the cost of providing a 401(k) plan or other defined contribution plan. Other provisions are optional. But both the required and optional provisions can help you use your company’s retirement plan to retain and attract quality employees in light of the current tight labor market. And if you’re a smaller manufacturer without a 401(k) plan in place yet, you may be eligible for a tax break that has become even more valuable.
New Requirements
Here are two significant requirements that will go into effect after 2024:
Automatic enrollment. For new 401(k) plans adopted after 2024, generally, the plan must provide automatic enrollment to eligible employees. Employees could still opt out. If an employee doesn’t opt out, employee deferrals ranging from 3% to 10% will be made, subject to escalation provisions.
Part-time workers. Building on changes in the first SECURE Act, the new law requires companies to include more part-time employees in their 401(k) plans. Effective for plan years beginning after 2024, part-timers are eligible to contribute if they’ve completed at least 500 hours of service for two consecutive years (and are at least age 21), down from three years of service. Vesting is based on completion of 500 hours of service in a year.
Optional Enhancements
Here are some optional ways SECURE 2.0 allows you to enhance your company’s 401(k) plan:
Matching employer contributions. SECURE 2.0 allows companies to designate any matching contributions, as well as fully vested employer nonelective contributions, as after-tax contributions to a Roth account. This provision is now in effect. With a Roth account, future distributions made to retired employees are generally exempt from federal income tax. This can be attractive to employees with incomes that are too high for them to be eligible to contribute to Roth IRAs or who are concerned about owing income tax on distributions during retirement.
Student loan repayments. Under the new law, manufacturers may choose to provide a matching contribution to 401(k) accounts of their employees based on their student loan obligations. This provision takes effect in 2024. Thus, employees may be encouraged to save for retirement even while they’re still paying off their student loans. This is a low-cost incentive that manufacturers can use to help attract and retain employees who may be burdened with student loan debt.
Emergency withdrawals. For distributions made after 2023, a manufacturer can amend its 401(k) plan to allow participants to withdraw up to $1,000 for personal emergency expenses. These are unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses. The plan administrator may rely on the employee’s certification for this purpose.
A Valuable Credit
Under the first SECURE Act, a manufacturer with 100 or fewer employees could claim a credit for three years equal to 50% of the administrative costs of starting a 401(k) plan, up to a maximum of $5,000. Beginning in 2023, companies with 50 or fewer employees can now qualify for a credit equal to 100% of the costs, up to $5,000.
The 100% credit is phased out for a business with 51 to 100 employees. An additional credit of up to $1,000 per employee is available for employer contributions for employees earning less than $100,000.
Other Enhancements
Here are two more provisions manufacturers should be aware of:
Cash-out limit. If a plan participant is terminated from employment — whether he or she retired, quit or was fired — a manufacturer may “cash out” the ex-employee’s interest if it’s below a specified level. Previously, the limit was $5,000. SECURE 2.0 increases the cash-out limit to $7,000, beginning in 2024.
Catch-up contributions. Currently, 401(k) participants who are age 50 or older can make an extra “catch-up contribution,” subject to an annual limit ($7,500 in 2023). Beginning in 2025, SECURE 2.0 increases the limit for those age 60 through 63 to the greater of $10,000 or 150% of the regular catch-up contribution limit, indexed for inflation after 2025. One catch: For any participant with wages in the prior year exceeding $145,000, any age-based catch-up contributions must be made to a Roth account, beginning in 2024.
Learn More
Bear in mind that this is only an overview of key changes that may apply to your manufacturing company’s 401(k) plan. Other provisions may affect your company. If you have questions regarding the new law, please contact Kirsch CPA Group.
We can help you tackle business challenges like these – schedule an appointment today.
© Copyright 2023. All rights reserved.
About The Author
Kirsch CPA Group is a full service CPA and business advisory firm helping businesses and organizations with accounting,…
Tags
Sign Up for Email Updates
Related Articles
Top 3 Federal Tax Law Changes that Could Affect Your Business Return
- 03-02-23
- Kirsch CPA Group
What Are the Most Common Form 990 Mistakes Not-for-Profits Make?
- 02-16-23
- Kirsch CPA Group
8 Ways to Insulate Your Construction Company Against Rising Costs
- 02-10-23
- Kirsch CPA Group
Tax Treatment of Debt Forgiveness: Watch Out for Tax Bills Delivered COD
- 01-18-23
- Kirsch CPA Group
Manufacturers: Be Aware of These 3 Business Tax Provisions Currently in Limbo
- 01-18-23
- Kirsch CPA Group
The Tax Deductible Mileage Rate for Business Driving Increases for 2023
- 01-04-23
- Kirsch CPA Group
Succession Planning Considerations for Construction Business Owners
- 12-14-22
- Kirsch CPA Group
Prevent Fraud at Your Construction Company With a Holistic Approach
- 11-30-22
- Kirsch CPA Group
Manufacturers Must Act Now to Maximize Depreciation-Related Tax Breaks for 2022
- 11-09-22
- Kirsch CPA Group
It’s Time for Businesses to Rethink Their Working Capital Practices
- 11-09-22
- Kirsch CPA Group
Social Security Wage Base and Earnings Test Amounts Increase in 2023
- 10-27-22
- Kirsch CPA Group
New Law Enhances Payroll Tax Break for Small Manufacturers’ Research Expenses
- 10-13-22
- Kirsch CPA Group
How Buy-Sell Agreements Factor into Business Owners’ Estate Plans
- 09-14-22
- Kirsch CPA Group
SALT Cap Workaround Law Could Save Ohio Business Owners Over $100 Million
- 08-31-22
- Kirsch CPA Group
How Manufacturing Companies Can Benefit from the Section 179 Expensing Deduction
- 08-04-22
- Kirsch CPA Group
Could the Work Opportunity Tax Credit Help Your Construction Company?
- 06-23-22
- Kirsch CPA Group
Good News: IRS Boosts Standard Mileage Rates for Second Half of 2022
- 06-23-22
- Kirsch CPA Group
Education Benefits Can Help You Recruit and Retain Smart Employees
- 05-26-22
- Kirsch CPA Group
Ensure Your Construction Accounting System Has the Right Features
- 05-12-22
- Kirsch CPA Group
John Kirsch Named to Greater Butler and Warren Counties Business Hall of Fame
- 03-25-22
- Diane Glover
Manufacturers Need to Act Soon to Take Advantage of 100% First-year Bonus Depreciation
- 03-17-22
- Kirsch CPA Group
Commission Fraud: Salespeople Getting Paid More Than They’ve Earned
- 02-04-22
- Kirsch CPA Group
Consider a New Approach to Meeting Your Business Real Estate Need
- 09-17-21
- Kirsch CPA Group
Beware: Teleworking Arrangements May Cause State Tax Withholding Issues
- 08-18-21
- Kirsch CPA Group
5 Common Construction Accounting Risks — and How to Address Them
- 07-07-21
- Kirsch CPA Group
Supreme Court Finds No Standing to Challenge a Provision of the ACA
- 06-24-21
- Kirsch CPA Group
Labor Shortage: Unlock Solutions by Evaluating Your Employment Value Proposition
- 06-09-21
- Kirsch CPA Group
Material Participation Standard is the Key to Unlocking LLC Tax Losses
- 05-27-21
- Kirsch CPA Group
Know Your Legal Obligations Under the Americans with Disabilities Act
- 05-13-21
- Kirsch CPA Group
PPP Loan Not Forgiven? There’s a Safe Harbor for Deducting Expenses
- 12-03-20
- Kirsch CPA Group
What You Need to Know About the Deferral of Payroll Tax Obligations
- 09-15-20
- Kirsch CPA Group
PPP Loan Forgiveness – Significant Borrower Friendly Changes on the Horizon
- 06-04-20
- John Kirsch
Tax Filing Deadline Remains April 15 – Payment Due Extended to July 15
- 03-19-20
- John Kirsch
Prepare to Receive a Social Security Administration No-Match Letter
- 10-15-19
- Kirsch CPA Group
IRS Announces Changes for Personal Use of Employer-Provided Vehicles
- 06-10-19
- Diane Glover
Watch Out for these Tax Issues When Planning for Your Business in 2018
- 06-26-18
- Diane Glover
What Image Does Your Organization Present to Large Contributors?
- 03-15-18
- Kirsch CPA Group
8 strategies to help you adapt to economic down turn without layoffs
- 02-24-18
- Diane Glover
Remember To Take Required Minimum Distributions at Age 70 1/2 Or Face Penalties
- 02-17-17
- Sue Schloemer
Time is Money: Don’t Spend Valuable Time Inputting Data into QuickBooks
- 06-18-22
- Diane Glover