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SECURE Act 2.0 for Businesses

Building on the 2019 SECURE ACT, the 2022 Securing a Strong Retirement Act (commonly referred to as SECURE 2.0) was passed to help boost savings in workplace plans, extend support to small businesses that want to help employees prepare for retirement, and increase tax incentives for small businesses. Here are some of the corporate highlights.

TAX CREDITS RISE

SECURE 2.0 increases the startup credit to cover 100% (up from 50%) of administrative costs up to $5,000 for the first three years of plans established by employers with up to 50 employees. It also clarifies that small businesses joining a multiple employer plan (MEP) are eligible for the credit.

AUTO-ENROLLMENT EXPANDS

Beginning in 2025, 401(k) and 403(b) plans will be required to automatically enroll eligible participants, though employees may opt out of coverage. There is an exception for small businesses with ten or fewer employees and new companies less than three years old. The expansion of automatic enrollment will help more workers save for retirement, particularly younger, lower-paid workers.

STARTER PLANS AVAILABLE

Next year, employers who do not already offer retirement plans will be permitted to provide a starter 401(k) plan, or safe harbor 403(b) plan to employees who meet age and service requirements. Through the starter plans, the limit on annual deferrals would be the same as the IRA contribution limit, and employers may not make matching or nonelective contributions to starter plans.

PART-TIME WORKERS BENEFIT

Starting in 2025, employers will be required to allow part-time employees (workers with over 500 hours per year for two consecutive years) to participate in their retirement plan after two years of service. Employees with over 1,000 hours of service must be included after one year of service.

SECURE 2.0 also made numerous changes to how company retirement plans operate. You’ll need to understand how these changes will impact your business—especially if you want to include a retirement plan in your employee benefits package.

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May 2023 Client Profile

The Sunbelt Company is revising its travel policy for employees who must travel for company business. Management is considering whether to adopt a per diem policy or stick with their current one, which covers employees’ actual expenses. Why should we change to a per diem policy?

Per diem expense policies provide employees with a fixed daily rate to cover most travel expenses. These types of policies allow for easier recordkeeping and budgeting. It lets employees avoid collecting stacks of receipts and eliminates variability in trip expenses. As long as your company policy conforms to the IRS per diem rules, your traveling employees won’t have to provide a record of every meal they purchased.

Alternatively, companies can offer a hybrid approach, using a per diem rate for typical travel. Perhaps when an employee is traveling to a high-cost location or meeting with a valuable customer or supplier, you could allow employees to charge their actual expenses.

Client Profile is based on a hypothetical situation. The solutions discussed may or may not be appropriate for you.

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Your Financial Legacy and Taxes

You may think that only other people’s estates have tax problems, but that’s often untrue. Take steps today to insulate your estate from taxes.

PROJECT AND PLAN

Start with income tax projections and planning at least twice a year. Catch tax problems early with your tax professional and find out if there are ways to minimize or even avoid taxes entirely.

Corporate executives with significant wealth in their employer’s stock can develop tax-efficient strategies for diversifying, such as stock donations and creating capital gains budgets.

UNDERSTAND HEIRS

Don’t review your own tax situation in a vacuum. Instead, consider your family’s overall position.

When you work with your tax professional, provide as much insight as possible into your multi-generational financial situation to minimize taxes—for you and your entire family.

BE EFFICIENT

Different assets have different tax characteristics. For example, a charity doesn’t pay tax on an inherited IRA, but your heirs may. So, whether it is an IRA, real estate, or cash remember the tax consequences that beneficiaries may experience.

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Easing Into Retirement Or Semi-Retirement

Retirement is not a single event. It is a process that begins long before you leave work and continues for the rest of your life. Here are some tips on how to transition into retirement and beyond.

CONSOLIDATE AND SIMPLIFY

Consolidate your retirement accounts for simplicity. Combining accounts makes managing your money and seeing the big picture easier.

Fewer accounts mean fewer monthly or quarterly statements, fewer companies to notify if you move or want to change beneficiaries, and possibly lower costs. It can also make calculating RMDs easier.

EXAMINE THE NUMBERS

As you move away from working full-time, be sure your monthly and annual budgets are up to date. Include existing expenses that aren’t likely to change, such as groceries and utility bills.

Don’t forget to include new expenses you may incur in retirement. This includes healthcare costs your employer may have paid for or taxes when you withdraw from tax-deferred retirement accounts.

UPDATE YOUR PLANS

If it’s been a while since you’ve reviewed your estate planning documents, nearing retirement is a good time for a refresher.

While you may focus on ensuring your will and trust documents are up to date, don’t forget about your power of attorney, health care directives and guardian nominations.

If your retirement plans include relocating to a new state, consult an attorney in the new location to ensure your estate documents will be valid in that state. Having out-of-state documents can complicate trust and estate adminstration.

When you update your estate plan, remember to create a list of your accounts and assets and update that list as things change. It is not important to add a value to the account, as those change over time. Make sure to include the name and location of the account and the last four digits of the account number. It is one of the most important things you can do for your beneficiaries to avoid a time-consuming treasure hunt for your assets when you’re gone.

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ClientLine Short Bits – Secure Act 2.0 for Individuals

At the end of 2022, Congress passed a new round of laws aimed at creating a secure retirement for Americans. Here are some of the highlights.

RMD AGE INCREASES

Beginning in 2023, the age to start taking required minimum distributions (RMDs ) from qualified retirement plans increases from 72 to 73. Then, beginning in 2033, it will increase to 75. You have until April 1 of the year after attaining that age to take your first RMD.

Starting this year, the penalty for failing to take an RMD is reduced from 50% to 25%. If the mistake is corrected in a timely manner, the penalty is reduced to 10%.

INFLATION ADJUSTMENTS

Beginning in 2024, the IRA catch-up contribution amount for taxpayers over age 49 and qualified charitable distributions (QCD) will be indexed annually for inflation.

EXPANDING EXCEPTIONS

Starting in 2024, there will be no early withdrawal penalty on distributions of up to $1,000 per year if needed to meet emergency expenses. There are limitations to taking more than one distribution in a 3-year period.

Starting in 2026, distributions of up to $2,500 per year will be allowed to pay long-term care premiums. Also, there are new exceptions for distributions to domestic abuse and terminally ill individuals. Allowed withdrawals for natural disasters, public service workers, private sector firefighters, and correctional officers have been expanded.

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May 2023 Client Line Newsletter

ClientLine Short Bits – SECURE Act 2.0 for Individuals.

Easing Into Retirement or Semi-Retirement – here are some tips on how to transition into retirement and beyond.

Your Financial Legacy and Taxes – take steps today to insulate your estate from taxes.

May 2023 Client Profile

SECURE Act 2.0 For Businesses – the 2022 act builds on the 2019 version.

Best Practices for Employee Reimbursements – using new technology to report and track employee business expenses can be easier and more accurate.

May 2023 Question and Answer

Amended Tax Return Tips – you can amend your return by filing Form 1040-X.

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Review Your Credit Report Often

Your credit report is your financial biography. It’s key to determining the interest rates you’ll pay on loans and can impact a job application if you work in certain fields. You’ll want to review all three of your credit reports at least once a year to ensure they are correct.

THREE REPORTS

According to a Consumer Reports study in 2021, one in three people reported finding errors on one of their credit reports. There are three credit reporting companies: TransUnion, Experian, and Equifax. You’ll want to review your report from all three. Just because your Experian report is correct doesn’t guarantee your Equifax report contains the same information.

IT’S PERSONAL

Start by reviewing the personal information (name, address(es), and dates of birth) to ensure that the data is correct. If you see an address you don’t recognize, it could signify that someone has misused your Social Security Number. This could be an early warning sign of identity theft.

ACCOUNT STATUS

Next, review all the accounts reported to the credit bureau. Ensure you know what each one is for and that you opened the account. Also, look at the payment status of each account for accuracy. Even one incorrect notation of a late payment can significantly impact your credit score.

You can receive each of your credit reports free once per year at Annualcreditreport.com.

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Raising Financially Savvy Kids

Whether your kids are toddlers or teenagers, it is critical that you teach them how to become financially independent.

KEEP THE END IN SIGHT

If you have adult children living at home with you, work with them to set a date to move out. Having a solid end date in mind can help keep them moving forward and on track.

CREATE A BUDGET

Use your experience to help your child create a realistic budget to help ensure spending doesn’t exceed income after taxes and savings. The budget should list after-tax salary, living expenses, debt payments, retirement contributions, savings goals and spending money.

Savings goals should include building an emergency fund of three to six months of living expenses in case they lose their job or need to pay an unexpected bill.

TEACH THEM

Educate your child on the benefits of the time value of money, paying off debt, and how to build good credit. This can help keep them from running aground financially in the future.

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April 2023 Question and Answer

QUESTION

What’s the difference between fixed and variable costs?

ANSWER

It’s important for small business owners to track and understand how expenses vary with changes in production and sales volume because it impacts many aspects of the business.

Most businesses have both fixed and variable costs. Fixed costs, or overhead expenses, are incurred regardless of a change in production and sales volume. Examples of fixed costs include rent, insurance, utilities, and some taxes (like property tax).

Examples of variable costs include raw materials, delivery expenses, sales commissions, and credit card processing fees.

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How to Deal with Unpaid Invoices

Proactive processes can help protect your company and its cash flow.

PREPARATION

Complete some due diligence before you decide to work with a client. Basic internet research for reviews can show how well the company is managed.

And when you start a contract with a customer, ensure that invoicing and payment details are provided. Spell out how you invoice and payment due dates so there’s no confusion. Be clear on what payment methods you accept and what your late payment policy is.

FOLLOW UP

If your client has a missed a payment due date, follow up immediately with a polite email reminder. And if you have contact information for the accounts payable department, reach out to them, as they will generally know why your invoice is unpaid. It could be that they’re waiting on approvals or missing information.

If the client continues to be delinquent despite your follow up efforts, perhaps you should stop providing products or services until you’re paid in full.