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Call The SECURE 2.0 Act is set to transform the retirement planning landscape in 2025, offering new opportunities for financial advisors to attract and retain clients. With provisions that encourage higher retirement savings, tax credits to offset plan costs, and flexible options for small business owners, SECURE 2.0 provides advisors with fresh ways to deliver value to employers and employees alike. Here are three major strategies from SECURE 2.0 that can help you expand your client base.
1. Converting SIMPLE IRAs to 401(k) Plans
In a significant change that took effect in 2024, the SECURE 2.0 Act now allows plan sponsors to convert SIMPLE IRAs into 401(k) plans mid-year. This conversion is permitted as long as the 401(k) is structured as a Safe Harbor 401(k), which satisfies certain IRS requirements for employer contributions and, in turn, simplifies compliance testing.
Previously, employers who established a SIMPLE IRA were locked into that plan structure for the entire calendar year, unable to switch to a 401(k) plan until the following year. This restriction limited the flexibility of SIMPLE IRAs and sometimes discouraged businesses from considering other options. Now, however, businesses can explore upgrading to a 401(k) mid-year, giving them access to features not available with SIMPLE IRAs.
Why This Matters for Advisors
This new flexibility opens a compelling sales opportunity for advisors. Many employers start with SIMPLE IRAs because they’re easy to set up and have low administrative costs. However, 401(k) plans offer higher contribution limits and more contribution and investment options, making them more attractive as businesses grow and employees seek greater retirement savings opportunities.
For example, while SIMPLE IRAs limit employee contributions to $16,500 (or $20,000 for those 50 and older) in 2025, 401(k) plans allow for much higher limits, with an elective deferral limit of $23,500 (or $31,000 for employees aged 50 and over). The special age 60 to 63 extra catch-up does not apply to Simple IRAs. Additionally, 401(k) plans offer Roth and loan options, catch-up contributions, and, in many cases, employer profit-sharing features. For growing businesses, these added benefits can make 401(k) plans a more appealing choice.
Advisors can reach out to employers with SIMPLE IRAs and suggest the benefits of upgrading to a Safe Harbor 401(k). By highlighting the enhanced contribution limits, Roth options, and flexibility in employee loan features, you can demonstrate how a 401(k) plan aligns better with a company’s growth objectives and employee needs. The mid-year conversion option can serve as a low-pressure transition, allowing plan sponsors to make the switch without waiting until the end of the year.
2. Leveraging New SECURE 2.0 Tax Credits for Retirement Plans
One of the most exciting elements of SECURE 2.0 is the introduction of new and expanded tax credits designed to reduce the cost of establishing and maintaining retirement plans. This shift provides advisors with a compelling way to attract small to mid-sized businesses that may have previously avoided setting up retirement plans due to cost concerns.
Three Key Tax Credits to Know
SECURE 2.0 introduces or expands three primary tax credits that can significantly reduce out-of-pocket expenses for employers:
- New Plan Tax Credit: Employers establishing a new retirement plan can receive a tax credit equal to 100% of the startup costs (up to $5,000 annually) for the first three years. This credit covers expenses such as setup fees and administrative costs, allowing plan sponsors to get their plan up and running with minimal financial burden.
- Employer Contribution Credit: For businesses with fewer than 50 employees, SECURE 2.0 provides a tax credit for employer contributions. Employers can receive a tax credit for up to $1,000 per employee, per year, for the first two years. The credit is reduced to 75% of eligible contributions in the third year, 50% in the fourth year, and 25% in the fifth year. This credit phases out gradually for businesses with 51 to 100 employees. It’s a valuable incentive for employers looking to match employee contributions without bearing the full cost themselves.
- Automatic Enrollment Credit: New plans that include automatic enrollment features are eligible for an additional $500 credit per year for the first three years. Automatic enrollment has been shown to improve plan participation rates, and starting in 2025, automatic enrollment will be required for new plans. This credit helps offset the cost of implementing automatic enrollment, making it more attractive for businesses.
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Why This Matters for Advisors
Cost is one of the most significant barriers to plan adoption for small businesses. By offering a detailed breakdown of these tax credits and explaining how they reduce out-of-pocket costs, advisors can position retirement plans as affordable and even financially beneficial for small employers.
For instance, a small business with 20 non-highly compensated employees can potentially qualify for the full $5,000 startup credit, plus an additional credit for contributions. This setup can save them tens of thousands of dollars over the plan’s initial years. Advisors can illustrate the tax savings for employers and emphasize how SECURE 2.0 allows them to provide robust retirement benefits without stretching their budgets.
3. SECURE 2.0 Expanded Solo 401(k) Opportunities for Sole Proprietors
Starting in 2025, SECURE 2.0 offers additional flexibility for sole proprietors who wish to establish Solo 401(k) plans. This new rule allows a sole proprietor to set up a Solo 401(k) for 2024, even after the end of the 2024 tax year. This means that business owners who meet the eligibility criteria — operating as a sole proprietorship with no employees — can now open a Solo 401(k) plan for a prior tax year, as they would with a SEP IRA.
Why This Matters for Advisors
Solo 401(k)s have several advantages over SEP IRAs, especially for clients looking to maximize retirement savings. For one, the Solo 401(k) offers the same total contribution limit as a SEP IRA, which is $69,000 in 2023 for those under 50, but it allows for lower income requirements. For instance, to maximize contributions under a SEP IRA, a self-employed individual needs an earned income of around $276,000. However, with a Solo 401(k), the income threshold drops to approximately $184,000.
Additionally, Solo 401(k) plans offer the flexibility of Roth contributions and catch-up contributions for those over 50, which SEP IRAs don’t provide. This flexibility allows advisors to help sole proprietors achieve higher retirement savings, especially if their earnings fall below SEP IRA thresholds. With the SECURE 2.0 change, advisors can also recommend the Solo 401(k) option at tax time, helping clients decide based on their previous year’s earnings and contributions.
For advisors, this provision opens a new way to approach sole proprietors and self-employed clients who may have overlooked Solo 401(k)s. By explaining the tax benefits and flexibility that a Solo 401(k) provides compared to a SEP IRA, advisors can help clients make the most of their retirement planning while securing a more favorable tax situation.
Final Thoughts
SECURE 2.0 is reshaping the retirement landscape, creating exciting new avenues for financial advisors to support clients and grow their businesses. The ability to convert SIMPLE IRAs to 401(k)s mid-year, the introduction of expanded tax credits, and new options for Solo 401(k) plans all present valuable opportunities for advisors. By staying informed and proactive, financial professionals can position themselves as trusted resources for businesses looking to navigate these changes.
Ultimately, SECURE 2.0 is an invitation for advisors to educate clients on the benefits of a modernized retirement plan approach, demonstrating both immediate and long-term savings. As these provisions take effect in 2025, advisors who incorporate these strategies can deepen client relationships and attract new ones, making SECURE 2.0 a pivotal tool in their growth strategies. As these provisions take effect in 2025, advisors who incorporate these strategies can deepen client relationships and attract new ones, making SECURE 2.0 a pivotal tool in their growth strategy.
