Secure Act 2.0, a law designed to improve Americans’ retirement savings, became law in 2022. But this year is when your private practice needs to pay attention – and comply.
Beginning Jan. 1, 2024, many of the 90+ new provisions of Secure 2.0 go into effect, bringing significant changes to retirement plans your practice already has in place; others bringing substantial opportunities to practices willing to offer retirement plans.
To stay compliant – and take advantage of the improved incentives, limits, and/or flexibilities the law offers you and your people – consider the following now
For Private Practices Without a Retirement Plan
If your practice hasn’t yet established a SEP, SIMPLE IRA, or other qualified plan, such as a 401(k) plan, Secure 2.0 makes doing so even more worthwhile by offering a substantial tax credit for startup costs. For practices with under 50 participants, the credit can offset $250 of administrative and advisory fees per year, up to a three-year period, for each non-highly compensated employee. If your administration fees are under $5,000, the maximum allowable credit, all your plan’s administration fees could be covered.
There’s another all-new tax credit for start-up plans your practice could take advantage of, too: the employer contribution credit. The contribution credit offsets a decreasing percentage of your employer contributions of up to $1,000 for each employee (who earns less than $100,000) for five years. If your practice has 50 or fewer employees, the percentage in the first two years of the plan is 100 percent; by year five, it’s 25 percent. (Practices with up to 100 employees will see a 2% decrease in each credit percentage for each employee after the first 50.)
Not only can both credits make a huge difference in your bottom line, in this hyper-competitive staffing environment, sweetening your benefits package with a retirement plan could also make a critical difference in attracting and retaining staff – and securing a better future for them and their families.
And there again is where the employer contribution credit comes in; a lot of practices are designing retirement plans around maximizing the account value for their physicians. In doing so, they generally require employer contributions to everyone else in the practice.
When to Act: Now
So, when do you need to set up a retirement plan in order to realize the benefits of Secure 2.0? If you’re looking to defer for tax purposes, you can set up a plan for your practice in 2024 and still make contributions for 2023. Talk to your tax advisor to understand your specific deadlines.
For Private Practices with Retirement Plans
For a practice with retirement plans already in place, there are several other changes Secure 2.0 brings that owners should keep in mind. In many cases, for instance, the administrative and advisory costs of a plan are paid directly from the plan assets, the bulk of which are typically the practice owner(s) and physicians’. With Secure 2.0, it might make sense to pay those costs through the practice instead, enabling your practice to take advantage of additional deductions and keep more money in the plan to compound over time.
Another Secure 2.0 change that practice owners should look at closely is the delay for required minimum distributions. Initially seen as a positive impact, waiting until the new allowable age of 75 (for people born after 1960) can potentially create an unfavorable (i.e., costly) tax situation in the future. Something to think about is doing ROTH contributions from the time you retire until you start those RMDs, which could allow you to have more control over what your taxable income is.
When to Act
Short answer: ASAP. Whether you have a personal retirement account or offer one to your employees (or plan to), Secure 2.0 is bringing dozens of changes in 2024 and, for better or worse, adding to the many previous changes brought by the Cares Act and Secure Act 1.0 of 2020.
It’s a lot for practice owners to digest and do, but ignoring the changes is not an option. To stay compliant – and take advantage of the improved incentives, limits, and/or flexibilities the law offers you and your people for 2024 and, in some cases, 2023 – make it a priority now to review the plan documents of your retirement plan. A few priority items: Is the employer contribution credit set up to maximize contributions to the practice’s owner(s)? Does your practice and people still meet all updated eligibility requirements? What’s the plan’s definition of compensation?
Rehmann’s recommendation: Don’t look at your plan(s) only in terms of compliance with Secure 2.0; review each plan, top down, to ensure your practice is not only in compliance with all the retirement- and tax-related legislative changes made in the last three years but also in an optimal position to handle and/or benefit from those changes wherever possible. Want to avoid the hassle and have confidence you and your practice’s retirement plans are on the right track? Reach out to one of Rehmann’s retirement-planning advisors by calling 989.799.9580.
