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Retirement Planning – Updated

Updated: Jul 24, 2023

I wrote an article on retirement planning a few years ago, and since there have been some updates, I thought I would share. Many of the changes have come in the face of covid and are temporary. Others are due to the perceived looming retirement crisis.

Changes related to COVID

The impact of COVID has been immense, and we will not know the full effect until much later on. One of the most valuable benefits relates to making withdraws because you or your family have been impacted. Legislation was passed to allow distributions of up to $100,000 from a retirement plan (most plans do qualify but check with your tax preparer if you have questions). This distribution would not be subject to the early distribution penalty of 10%, as long as it was qualified. The associated tax could be split over three years instead of including all of it on your 2020 tax return. If you recovered and can pay back all or a portion of the distribution, you would just amend any returns that included it in income, and it would instead effectively be treated as a loan.

The SECURE Act also did a lot for retirement plans, mainly offering employers incentives for starting retirement plans. A new type of 401k was also created called a “Pooled Employer Plan” or PEP. Lastly, it allowed employers additional time to establish these plans and contribute (elective deferrals do not get an extension).

Chart comparing PEP plans to 401K plans
AICPA Info Graphic - PEP vs. 401K

The SECURE Act also extended the age for required minimum distributions to 72 (previously 70 ½).

Not all changes to retirement plans were good. To help pay for some of the credits established by the Act, the associated penalties for late filing have increased. The penalties for failing to timely file a Form 5500 or 8955-SSA have increased dramatically (from $25/day to $250/day and from $1/day/participant to $10/day/participant, respectively). If you are a plan sponsor, you want to ensure you are maintaining compliance, so you do not get charged any penalties.

Other Changes

Certain states are now mandating retirement plans. These plans typically are for employees that work for smaller companies. The requirements are different in each state. Currently, there are 11 states with some program (Washington, Oregon, California, New Mexico, Illinois, New York, Vermont, Massachusetts, New Jersey, Connecticut, and Maryland) and more have proposed legislation. If you are an employer in one of those states, you will want to make sure you are following the requirements (if you have a payroll provider, they should be able to help you too).



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