Santa Claus came a few days early for more workers â€“ including those working part-time and even freelance â€“ when the SECURE Act was signed into law on December 20, 2019.
The new legislation, which took effect on January 1, 2020, stands for Setting Every Community Up for Retirement Enhancement. It provides more part-time employees with access to tax-friendly workplace retirement plans such as 401(k)s, while also making it more affordable for small businesses to set up these plans.
Small businesses can now claim up to $5,000 in tax credits each year to cover 50% of their startup costs for retirement plans. Previously, they could claim only $500. In addition, small businesses can claim â€“ for up to three years â€“ a new $500 annual tax credit for 50% of their startup costs in building auto-enrollment features into their 401(k) and SIMPLE IRA plans.
Starting in 2021, the SECURE Act will enable businesses from different industries to join forces and pool the costs to create retirement plans for their employees under one plan provider. This will allow them to compete for better plans previously available to only large employers.
Automatic enrollment has been shown to increase employee participation and higher retirement savings. Data from the U.S. Bureau of Labor Statistics released in 2018 showed that only 55% of the American adult population participated in a workplace retirement plan.Â The legislation creates a new tax credit of up to $500 per year (up to three years) to help employers defray startup costs for new retirement plans that include automatic enrollment.Â This credit is in addition to the plan start-up credit mentioned earlier.