26 Mar A NEW RETIREMENT OPTION FOR SMALL BUSINESSES

The SECURE Act (Setting Every Community up for Retirement Enhancement) of 2019 was passed into law to encourage more people to save for retirement.  In late 2022 SECURE  Act 2.0 was passed into law and it also offers new retirement savings opportunities for small businesses.

Until recently, the only way a small business could put monies away for retirement was a pre-tax or tax deferred contribution into a retirement account (IRA). But with the passing of the SECURE Act 2.0 small businesses can begin to save for retirement with after tax funds through a  SEP (Simplified Employee Pension) Roth IRA.

What is the difference between a SEP Roth IRA and a SEP traditional IRA?

SEP Traditional IRA – This plan uses monies that have not been taxed and are put into an investment account (IRA). Both the initial contribution and growth amounts will be taxed when they are withdrawn from the account in retirement. The withdrawal will be taxed at the future tax rate which could be higher or lower.

SEP Roth IRA – This plan uses monies that have already been taxed at your current tax rate. When you withdraw the funds in retirement the contribution and any growth will not be taxed. This would lower the amount of money lost to taxes. Previously, this option has only been available through an individual Roth IRA and has income and contribution limitations.

With the passing of Secure Act 2.0, a small business may (not required) offer a Roth IRA option. It will allow a larger contribution amount into the retirement account than an individual Roth IRA.

While the provisions of SECURE Act 2.0 are incomplete, we at Stephen & Associates are waiting for IRS guidelines to be implemented. As soon as details emerge, we will be ready.