Small business retirement coverage is having a moment. The share of small businesses with an active retirement plan rose from fewer than one in five to nearly one in three between 2019 and 2025 — expanding retirement savings access to 5.6 million workers.7
Legislation like the SECURE 2.0 Act could be one reason why. Signed into law in December 2022, it expanded tax credits,¹ introduced new plan options, and lowered barriers for small employers to offer a retirement benefit.
Here's what the law changed — and how your business can take advantage of it.
New benefits and requirements established by SECURE 2.0
Establishment of "Starter 401(k)"
The new Starter 401(k) provisions allow employers that have not sponsored a retirement plan in the past 12 months to set up a streamlined version of the 401(k) — named the "Starter 401(k)." Under this new plan type, employers cannot contribute, employee eligibility requirements are much less flexible, and employees are automatically enrolled at 3% of pay if they fail to make an election. However, contribution limits are much lower for employees than a traditional 401(k).
For 2026, employees can defer up to $6,000 into a Starter 401(k), with an additional $1,100 catch-up contribution available for those aged 50 and older.² In exchange for the much lower deferral limit and inability to make employer contributions, Starter 401(k)s are exempt from most of the annual testing that traditional 401(k)s are subject to.
66% of businesses that don’t offer a 401(k) believe it’s cost prohibitive, but the Starter 401(k) can help with that.³ It can be a great option for small businesses that cannot afford the administrative complexities and heavier price tag of a traditional 401(k) but still want to give workers an opportunity to save for retirement. And especially in states that require an employer-sponsored retirement plan, the Starter 401(k) could be a great private alternative to the state-IRA options.
The creation of Pension-Linked Emergency Savings Accounts
Another new provision was the creation of Pension-Linked Emergency Savings Accounts, or PLESAs, which are employer-sponsored accounts linked to a retirement plan, where non-highly compensated employees can withdraw more regularly and without penalty.
The account is to be set up as a designated Roth account and invested in liquid and capital preservation vehicles such as a money market fund.⁴ Contributions must cease after the account balance reaches $2,500, and any additional savings goes to the Roth 401(k) account instead.
Participants can be auto-enrolled at 3% of gross income as an after-tax elective deferral. If a match is offered, employers need to match the funds with whatever 401(k) matching formula is used, and the match would be contributed to the 401(k) account. Participants can withdraw funds at least once monthly. They will also be able to replenish funds back up to the $2,500 cap at any time.
Not only do PLESAs have the potential to help alleviate the nationwide problem of households not having enough liquid emergency funds, but they could also encourage retirement plan participation, since a reason for not participating is the fear of needing liquidity if an emergency were to occur.
Auto-enrollment requirements
While automatic enrollment is not a new plan option, the new rules SECURE 2.0 introduced now require most 401(k) and 403(b) plans established after December 29, 2023 to include automatic enrollment, along with auto-escalation, as default features. The initial auto-enrollment default must be between 3% and 10%, and the rate must increase every year by 1%, until the participant’s default deferral rate reaches at least10%, and no more than 15%.
There is an exception to this requirement for small businesses with ten or fewer employees, new businesses, church plans, and governmental plans.
Employer incentives
Increased tax credits
All in all, businesses may qualify for up to $15,000 in tax credits when starting a new 401(k), covering up to 100% of plan costs for the first three years. In addition, there are various other credits, including an employer contribution credit, and automatic enrollment credit.6 Combining the start up credit with the auto-enrollment credit could give a business offering a plan up to $16,500 in tax credit in the first three years.
The original SECURE Act, passed in 2019, increased the Retirement Plans Startup Cost Tax Credit to the greater of $500 or the lesser of either (1) $250 for each eligible non-highly compensated employee (NHCE) or $5,000. The credit applies for up to three years and was limited to 50% of eligible startup costs, which include ordinary and necessary costs to both setup and administer the plan, as well as educate employees about the plan.
Employers qualify for this credit if they have 100 or fewer employees, have at least one plan participant that is an NHCE, and have not sponsored a plan in the last three years.
SECURE 2.0 removes the 50% cap for qualifying businesses with up to 50 employees so that 100% of startup costs could potentially be covered. The maximum credit is still $15,000 over three years.
SECURE 2.0 also provides an additional credit for employer contributions, up to $1,000 per employee earning $100,000 or less. Employers with up to 50 employees are eligible for the full credit, which is phased out for employers with 51-100 employees. This credit also phases out over the first six years.
The new tax credit provisions significantly increased the benefits of starting a 401(k) plan for the smallest businesses, which can make plan administration less of a burden in the long run.
Innovative matching
Saver's Match — coming 2027
SECURE 2.0 turns the current Saver's Credit into a Saver's Match. Currently, individuals under a certain income threshold who save into their retirement account are eligible to receive a non-refundable tax credit of 50%, 20%, or 10% of their retirement contributions up to $1,000.
The new provisions require that this credit be deposited directly into a retirement account. The amount of the credit will remain the same based on prior requirements and again is phased out depending on income.
This provision is a clever way of ensuring that the saver's retirement tax benefit is actually contributed towards their retirement and helps to boost retirement savings for those in a lower income tax bracket. However, it won't be effective until 2027.
Student loan matching
There is also good news for those paying off student debt — SECURE 2.0 allows employers to match payments that employees make toward qualified student loans. The match must follow the same formula and vesting schedule as whatever is tied to the retirement plan, and the contribution will be deposited into the employee's retirement account.
Employers rely on the employee's certification that loan payments are being made. The student loan participants may also be tested separately from the rest of the plan for ADP purposes.
The rules allow employees with large student debt to still capitalize on any matching contributions offered by their company to help them keep on track for retirement.
Participant provisions
Catch-up contributions increased
The Act included some adjustments for later-stage participants, beginning with an increase in catch-up contributions.
There is now an increased catch-up contribution limit for 401(k) and 403(b) plans for those aged 60 to 63.² For 2026 the catch-up limit is $11,250 instead of the $8,000 limit for those aged 50-59 or 64+. The limit will be indexed for inflation every year.
Another change is that certain high earners who are eligible to make catch-up contributions will have to make them as Roth4 elective deferrals. For 2026, those who earned $150,000 or more in 2025 from the employer sponsoring the plan, will need to make their catch-up contributions as Roth.
Age for Required Minimum Distributions increased
The required minimum distribution (RMD) age increased from 72 to 73; and will also increase to age 75 in 2033. Additionally, starting in 2024, designated Roth contributions were no longer included when calculating the RMD amount.
The late withdrawal penalty is also decreased to either 10% or 25% (down from 50%), depending on how soon the error is corrected.
Helping your team save for the future
The SECURE 2.0 Act isn't just a compliance checklist — it's one of the most significant expansions of retirement access in years. Whether you're starting a plan for the first time, updating an existing one, or just trying to understand what's required of you in 2026, the changes SECURE 2.0 brought may create a real opportunity to offer a benefit that attracts and retains great people — one in two employees would turn down a job offer from a company that does not offer a retirement benefit.⁵
Gusto can help you set up and manage a 401(k) that takes advantage of these provisions — including automatic enrollment, tax credit tracking, and plan designs built for businesses of every size. If you're ready to take the next step, explore Gusto's 401(k) plans.
FAQs
What is the SECURE 2.0 Act?
The SECURE 2.0 Act of 2022, signed into law on December 29, 2022, is a major piece of retirement legislation that expands access to workplace retirement plans, increases tax incentives for employers, and adjusts savings rules for employees. It builds on the original SECURE Act of 2019 with dozens of new provisions rolling out through 2027 and beyond.
Does SECURE 2.0 require automatic enrollment in 401(k) plans?
Yes. Most newly established 401(k) and 403(b) plans must include automatic enrollment (starting at 3%-10%) with annual auto-escalation up to at least 10%, effective January 1, 2025. Exceptions apply to businesses with 10 or fewer employees, new businesses, church plans, governmental plans, and plans established before December 29, 2022.
Can employers match employee student loan payments under SECURE 2.0?
Yes. Starting in 2024, employers can match qualified student loan payments using the same formula and vesting schedule as their regular 401(k) match, with the match deposited into the employee's retirement account. This helps employees with student debt build retirement savings even while paying down loans.
How does SECURE 2.0 change required minimum distributions (RMDs)?
The RMD starting age increased to 73 as of January 1, 2023, and will rise again to 75 in 2033. Starting in 2024, designated Roth 401(k) contributions are excluded from RMD calculations. The penalty for missing an RMD was also reduced from 50% to 25% (or 10% if corrected promptly).
Disclosures
1 This content is for informational purposes only and is not intended to be taken as tax advice. Please contact a tax professional for further information.
2 Subject to IRS cost-of-living adjustments.
3 Gusto Retirement (formerly Guideline) research run with Suzy. Insights based on data collected February 2024, survey of 350 US-based employers who do not offer a retirement benefit. Guideline was not identified as the survey sponsor. The experiences of the respondents in this survey may not be representative of all people.
4 Roth contributions are always distributed tax-free. The earnings on Roth contributions will be tax-free if the following conditions are met: (a) you're either over age 59 ½, disabled, or have died AND (b) it has been 5 years since your first Roth contribution under the current plan. Please consult a qualified financial advisor or tax professional to determine what is applicable to your financial situation.
5 Gusto Retirement (formerly Guideline) research run with Suzy. Insights based on data collected Dec 2023 to Feb 2024 with 150 US-based employers and 1038 US-based employees, ages 18-75. Guideline was not identified as the survey sponsor. The experiences of the respondents in this survey may not be representative of all people.
6You should consult a tax professional to determine what types of tax credits or deductions your company is eligible to claim.
7 See here
