Catch-up limits
The annual amount that can be contributed to a retirement plan is limited, and this limitation amount is generally subject to annual adjustments for inflation. For plan participants aged 50 or older, the contribution limitation is increased (“catch-up contributions”). For 2022, the amount of the catch-up contribution is limited to $6,500 for most retirement plans, and $3,000 for SIMPLE plans, and are subject to inflation increases. Under the Securing a Strong Retirement Act of 2022, a second increase in the contribution amount would be available for participants aged 62, 63, or 64, effective for tax years after 2023. For most plans, this “second” catch-up limitation would be $10,000, and $5,000 for SIMPLE plans. Like the “standard” catch-up amount, these limitations would also be subject to inflation adjustment.
The annual limit on contributions to individual retirement accounts (IRAs) is also increased for participants aged 50 and older. The “catch-up” limit for IRAs is $1,000. Unlike the catch-up amount for other plans, this amount is not subject to increases for inflation under current law. The Securing a Strong Retirement Act of 2022 would make the IRA catch-up amount adjusted annually for inflation for tax years beginning after 2023.
Finally, the bill requires, effective for tax years beginning after 2022, that all catch-up contributions are subject to Roth (i.e. after-tax) rules, rather than only where allowed by the plan.
Small employers
Currently, as established by the original SECURE Act, for the first three years an eligible small employer establishes an eligible plan, it can claim a credit of 50 percent of start-up costs with the credit not to exceed the greater of (1) $500 or (2) the lesser of $250 for each employee eligible to participate in the plan who is not highly compensated or $5,000.
Under the Securing a Strong Retirement Act of 2022, effective for tax years beginning after 2022, the length of time for which the credit can be claimed is extended to five years for employers with 50 or fewer employees. Additionally, the amount of the credit is increased to 100 percent of startup costs for employers with 50 or fewer employees, with a cap of $1,000 per employee. The 100 percent credit amount is phased out for employers with 51 to 100 employees, and also drops incrementally to 25 percent in the fifth year.
The bill also retroactively makes the startup credit (as expanded by the original SECURE Act) available to small employers that join a multiple employer plan (MEP) that was already in existence. Without this fix, the small employer would not have been eligible for the credit if the MEP had been in existence for three years. The fix is effective for tax years beginning after 2019.
The bill also provides a credit for small employers who make military spouses immediately available to participate in the employer’s retirement plan. The credit is effective for tax years beginning after the date of enactment of the bill.
Comment: The military spouse retirement plan eligibility credit is meant to ensure that military spouses can save for retirement. These spouses are often not located in one area long enough for them to meet length-of-service requirements for plan participation.
The Securing a Strong Retirement Act of 2022 also allows employers sponsoring 403(b) plans, which are typically charitable organizations and other non-profits, to participate in MEPs just like sponsors of 401(k) plans. This expansion is effective for plan years beginning after 2022.