Every year, things change when it comes to 401(k) plans. For plan sponsors, the end of the year or start of a new year is the perfect time to check out the changes and make sure you are in compliance.
In 2020, there are a few things every plan sponsor needs to know about 401(k) plans. Read on:
One of the main changes this year comes with the passage of the SECURE Act. It stands for Setting Every Community Up for Retirement Enhancement and was signed into law by President Trump.
This law, aimed at helping Americans save more for retirement, brings a few key changes in 2020 to 401(k) plans. One of the main things it does is make it much easier for small business owners to set up cheaper and easier “safe harbor” retirement plans. It also allows part time employees to take part in employer-sponsored plans.
As most employers know, the American retirement system is in trouble. There are issues with the Social Security System and fewer Americans have pensions – not to mention that we simply aren’t saving enough for retirement.
The facts are, only about half of Americans even participate in a workplace retirement plan and when they do, they don’t contribute nearly enough to fund their life after retirement.
The changes that are coming via the SECURE Act are set to encourage employers to offer retirement plans – and for workers to use them! The Act seeks to make 401(k) plans easier and less difficult to administer.
Other things the plan seeks to change are: Giving employers a maximum tax credit of $500/year if they create 401(k) or simple IRA plans with automatic enrollment; encouraging annuities as an option in workplace plans and pushing back the age people need to take required minimum distributions from 70 ½ to 72.
There are other provisions as well, such as adoption credits and 529 account changes.
For plan sponsors, some of these changes can make a real difference and for employees, this is even more reason to start saving for retirement in a 401(k) plan.
This new act could really change the system and hopefully, encourage more Americans to adequately plan for retirement!
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If you have other questions about retirement plans, email us or call 937.308.0758.
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