By Edward “Ed” V. O’Neal, Senior Vice President and Manager, Retirement Plans
With the summer season now in full swing, the thoughts of many are focused on fun activities like visiting amusement parks, finding some beach time and planning exciting road trips. But for many business owners, thoughts are increasingly turning to the new and exciting retirement plan provisions introduced through recent retirement plan legislation.
Over the last few years, the retirement plan industry has seen significant legislative activity, including the enactment of The Setting Every Community Up for Retirement Enhancement (SECURE) Act in 2019 and the SECURE Act 2.0 in 2022. Although both legislative efforts were large in scope and scale, there were some core themes highlighted throughout the legislation, such as increasing employee retirement savings and contributions.
A few of the provisions in the legislation gaining attention with business owners allow for significantly enhanced contributions to SIMPLE IRAs. These are employer-sponsored retirement plans that are intended to be a cost-effective solution for small business owners (i.e., less than 100 employees) in search of a retirement plan that permits both employee elective deferrals and employer matching or nonelective contributions. SIMPLE IRAs have been a popular solution for small business owners searching for a 401(k) “lookalike” plan, but without the complexity and cost of a traditional 401(k) plan.
Increased Contribution Limits
Recent legislative efforts have enhanced SIMPLE IRA contribution levels in several impactful ways, including:
- Employee elective deferral and catch-up contribution limits (for employees aged 50 and over) were increased for businesses with 25 or fewer employees. This increases the salary deferral level from $16,500 to $17,600 (for 2025) and the catch-up limit from $3,500 to $3,850 (for 2025).
- Business owners with 26 to 100 employees can also make the increased deferral and catch-up contribution limits available to eligible employees, but they must commit to an enhanced employer contribution of either a 4% match or 3% nonelective contribution (instead of the traditional 3% match or 2% nonelective contribution requirement for SIMPLE plans).
- A select group of employees in SIMPLE IRAs, beginning in 2025, will be permitted to make an enhanced catch-up contribution. This “super” catch-up contribution is available for employees ages 60–63 and will permit a catch-up contribution of up to $5,250 (for 2025) for this select group. During the period of age 60–63, employees will not be able to utilize both the enhanced and regular catch-up contribution limits but will need to adhere to one or the other. Beginning at age 64, employees will return to the regular catch-up contribution limit.
- Additionally, new legislation permits business owners to make a nonelective contribution to the SIMPLE plan of the lesser of 10% of compensation or $5,000 to eligible employees. This employer contribution is in addition to the required SIMPLE employer contribution (matching or nonelective) and is voluntary for the business owner.
As we go through the summer months, and the rest of the year, business owners will continue to gain clarity about the recent retirement legislation and provide opportunities to help employees meet their retirement savings goals. Be sure to reach out to your legal and tax advisor to review the impact of recent retirement legislation on your business tax situation and consider speaking with your financial advisor for any questions related to the impact of recent legislation on employer retirement plans.
IMPORTANT DISCLOSURES: The information provided is based on internal and external sources that are considered reliable; however, the accuracy of this information is not guaranteed. This piece is intended to provide accurate information regarding the subject matter discussed. It is made available with the understanding that Benjamin F. Edwards & Co. is not engaged in rendering legal, accounting or tax preparation services. Specific questions on taxes or legal matters as they relate to your individual situation should be directed to your tax or legal professional.