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SECURE Act Could Increase Benefits in 401k Plans

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Congress could increase access to 401k plans with the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019.

Notably, the SECURE Act will eliminate the age limit on IRA and 401k contributions, a U.S. House Ways & Means Committee summary reveals.

Persons Over 70.5 Could Contribute

If signed by the President, the SECURE Act could allow older workers to contribute to retirement plans. In some retirement plans, those over age 70.5 are prohibited from contributing to IRAs and 401ks.  Currently, the SECURE Act is far from the President’s desk because it is still in the House.

Interestingly, persons over 70.5 do not need to wait for the SECURE Act to pass to contribute to certain types of 401k plans. Innovative plans like the Solo 401ks from Nabers Group allow those over 70 to contribute to retirement plans now.

The Nabers Group designs Solo 401ks to comply with the latest IRS regulations. Those regulations eliminate the restrictions on over 70.5 contributions without the SECURE Act.

SECURE Act and the Solo 401k

In the face of a growing retirement crisis, the SECURE Act was designed to encourage more Americans to prepare for retirement.

One aspect of the SECURE Act is the allowance of part-time workers to participate in 401ks. Specifically, those who work less than 1,000 hours a year may be able to take part in retirement plans. Current law restricts traditional corporate 401k participation largely to those who work over 1,000 hours a year.

Business owners with a Solo 401k plan need to pay attention to this part of the Act if is passes.

Currently, Solo 401k plan owners do not need to offer participation to part-time employees. However, the SECURE Act could change that. If the SECURE Act passes, Solo 401k owners may need to consider only hiring independent contractors instead of part-time workers. If part-time workers must be included in all 401ks, the plan is no longer “solo” and a business owner wanting to control his assets will need to find a workaround.

Increase Participation in Retirement Plans

Importantly, the SECURE Act might make it easier to transfer money between retirement plans. Therefore, you could more easily transfer funds into a Solo 401k plan when you launch your own business if the SECURE Act becomes law.

In addition, the SECURE Act aims to make it easier for small businesses to offer 401ks to their employees. For example, the SECURE Act gives businesses a $500 tax credit for setting up a 401k with automatic contributions. Consequently, a business could receive a $500 tax credit each time an employee sets up a Solo 401k with automatic contributions. At time of writing, it is unclear if the business owner can receive the $500 tax credit for establishing the Solo 401k plan. However, many CPAs recommend writing off establishing the Solo 401k as a business expense.

House Committee Passes SECURE Act

The House Ways & Means Committee passed the SECURE Act in a rare unanimous vote on April 2, 2019. Oddly, both Democrat and Republican leaders back the bill, CNBC claims.

The SECURE Act hopes to increase the number of Americans with retirement plans. The government may be pushing the passage of the SECURE Act in an attempt to encourage more retirement planning. Many Americans are way behind in their retirement savings. CNBC notes that 1 in 3 Americans have less than $5,000 in their retirement nest egg.

SECURE Act could let more Americans invest in 401ks

The SECURE Act contains several other measures to increase retirement plan participation and shore up the pension system. For instance, graduate and postdoctoral students could invest stipends and non-tuition fellowship payments in retirement accounts if the Act passes.

Current law prohibits grad students from putting such money in individual retirement plans. Postdoctoral and graduate students who have their own small business could take advantage open their own Solo 401k and tax-shelter business earnings if the President signs the SECURE Act. Plus, the SECURE Act allows recipients to use money from 529 education plans to pay for apprenticeships, home schooling, and up to $10,000 in student loan repayments.

Will the Secure Act Become Law?

The SECURE Act is far from becoming law because it has passed neither the US House of Representatives nor the U.S. Senate.

Notably, the Senate’s version of the SECURE Act is still in committee, Think Advisor reports. However, Congress could fast track SECURE because the legislation has broad bipartisan support.

For instance, a Democrat Ron Wyden (OR) and a Republican Chuck Grassley (IA) are sponsoring the Senate version of the Act. However, the SECURE Act could die quickly if Democrats and Republicans do not agree on funding.

Moreover, SECURE will need the President’s signature to become law if it clears Congress. Since President Donald J. Trump’s opinion of the SECURE Act is unknown, it is not clear if the chief executive will sign the law.

What Business Owners Need to Know

If you have have a Solo 401k plan, or are considering establishing a plan for your business, you may want to follow the SECURE Act’s progress closely. In fact, some observers think the SECURE Act could implement the greatest changes to individual retirement plans since the Pension Protection Act of 2006.

Therefore, prudent business owners should consider consulting with 401k experts. Our team is happy to explain the benefits of establishing a Solo 401k plan for your small business, including exploring a wide range of 401k options you are probably unaware of.

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