One of the many provisions within the SECURE Act that helps business owners, is the ability for companies to establish certain tax-qualified retirement plans beyond the December 31, 2020 deadline.
Previously, an employer had to adopt a workplace plan by the last day of the employer’s tax year.While employer contributions could be made after year-end, until the company filed their federal tax return, creating a new retirement plan was precluded after the last day of the employer’s tax year.
However, under the SECURE Act, businesses now have until they file their corporate tax returns (including extensions) to establish a new retirement plan for their employees. This includes employer funded 401k’s and Cash Balance Plans.
For example, A business owner wishes to set up a new profit-sharing plan. The company’s fiscal year ends on December 31st and the company’s deadline to file its corporate tax return is the following October 15th. Under the SECURE Act, the company would have until October 15th of that following year to set up a new retirement plan, rather than the previous December 31st deadline.
While this change does not give employees the ability to make salary deferrals after year-end, it does offer flexibility in the timing of employer contributions only, for example, profit-sharing plans and pension plans or Safe Harbor 3%. This extended deadline can be particularly helpful to many business owners who do not complete their year-end financials until after the end of the year. This provision will provide additional deductions for those who wish to retroactively establish a qualified plan to help their employees save for retirement.
