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SECURE 2.0 for optometric practice owners
By Adam Cmejla, CFP®
Feb. 26, 2025
As an optometric private practice owner, you’re no stranger to balancing the complexities of running a business while planning for your financial future.
With the passage of SECURE 2.0 (“Setting Every Community Up for Retirement Enhancement”) in late 2022, new opportunities and requirements emerged that directly impact how you can optimize retirement savings for yourself and your team.
While there are many different components to SECURE 2.0, here’s a guide tailored to practice owners navigating this evolving landscape.
What Is SECURE 2.0?
SECURE 2.0 was signed into law on December 29, 2022 as part of the Consolidated Appropriations Act of 2023. It builds on the original SECURE Act of 2019, introducing new provisions designed to expand access to retirement plans, boost savings and simplify plan administration for small business owners—including optometric practices.
The subtle message in both pieces of this legislation is our government acknowledging that many Americans are ill-prepared for their own retirement.
To help address the impending issue without the government absorbing the totality of the responsibility, Congress decided to use small business owners as the “conduit,” reimbursing owners for the cost of SECURE and SECURE 2.0 through tax credits.
For practice owners, SECURE 2.0 offers enhanced tax credits, expanded plan options and new requirements to consider. These updates provide an excellent opportunity to revisit your retirement plan strategy and ensure it aligns with both your business goals and employee needs.
Tax Credits: Encouraging Retirement Plan Adoption
One of the stand-out features of SECURE 2.0 is its significantly enhanced tax credits for small businesses establishing new retirement plans. These credits were available starting in the 2023 tax year.
If you’ve (a) been on the fence about starting ANY type of retirement plan in your practice, or you’ve (b) had a SIMPLE IRA or other type of plan and have been considering switching to a 401(k) safe harbor retirement plan, there’s never been a better time to make the switch!
Startup & Ongoing Cost Credit for Plans
Practice owners can now claim a tax credit of 100 percent of eligible administrative costs (up from 50 percent), capped at $5,000 annually for the first three years. This credit applies to the costs of setting up a plan (including consulting fees), as well as ongoing plan administration.
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Employer Contribution Credit
Practice owners can also claim a credit for employer contributions to new plans. The credit equals 100 percent of contributions (up to $1,000 per employee earning under $100,000) for the first two years, then phases down over the next three years:
- 75% in Year 3
- 50% in Year 4
- 25% in Year 5
The credit is fully phased out for businesses with more than 100 team members. Also, when calculating and determining who’s eligible, SECURE defines an employee as someone who has made at least $5,000 in the preceding year with the employer.
Takeaway: If you’ve been on the fence about establishing a retirement plan for your practice, these tax credits can substantially offset the initial costs—both in plan administration as well as employer matches.
Key Changes Taking Effect in 2025
While some SECURE 2.0 provisions are already in effect, significant updates come into play starting in 2025. Here are the ones most relevant to optometric practice owners:
- Mandatory Automatic Enrollment and Escalation
For new 401(k) plans established in 2025 or later, automatic enrollment will be required for eligible employees. For new plans that started after December 29, 2022, auto-enrollment will apply to all plan-eligible employees starting in 2025.
It’s important to know that while employees will be auto-enrolled, they will have the ability to opt out—there still is a decision to be made. However, this “negative consent” format is the legislation’s way of attempting to get as many people enrolled in retirement plans as possible.
The initial deferral rate must be at least 3 percent (and no more than 10 percent). Plans must include automatic escalation, increasing employee contributions by 1 percent annually until reaching a minimum of 10 percent (but not exceeding 15 percent).
Exemptions to this rule are:
- Practices with 10 or fewer employees
- Practices less than three years old
If you plan to establish a new retirement plan in 2025 or later, you’ll need to account for these automatic features in your payroll and plan design.
- Roth Catch-Up Contributions: Understanding the Changes Under SECURE 2.0
The SECURE 2.0 Act introduced significant changes to catch-up contributions for retirement plans, particularly with the requirement for high earners to make these contributions on a Roth (after-tax) basis.
What Are Catch-Up Contributions?
Catch-up contributions allow employees aged 50 and older to contribute additional amounts to their retirement plans, such as 401(k)s, 403(b)s, and SIMPLE IRAs, beyond the standard annual contribution limits. These contributions are intended to help individuals accelerate their retirement savings as they approach retirement age.
Effective in 2026, a new provision requires employees aged 50 and older who earn more than $145,000 annually (adjusted for inflation) to make their catch-up contributions as Roth contributions. This means these contributions must be made on an after-tax basis rather than the traditional pre-tax basis.
However, beginning in 2025, the SECURE 2.0 Act introduces a new optional opportunity for employees aged 60 to 63 by 12/31/2025 to make enhanced catch-up contributions, up to the greater of:
- 150 percent of the standard catch-up contribution limit for the year, or
- $10,000 (adjusted for inflation).
Given that 2025’s catch-up contribution is still $7,500, this optional enhancement means that an employee could contribute an additional $11,250 ($7,500 x 150%).
Starting in 2026, these enhanced contributions will also be subject to the Roth requirement for high earners.
Why These Changes Matter
The Roth requirement represents a significant shift in how high earners plan for retirement.
While Roth contributions are made with after-tax dollars, they grow tax-free, and qualified withdrawals in retirement are not subject to income tax. This change ensures that high earners contribute more to the tax base now while potentially reaping tax-free benefits later in retirement.
Action Item: 2025 is a unique planning opportunity, allowing participants (including owners) to contribute an even higher catch-up contribution of $11,250 and still do it on a pre-tax basis.
- Emergency Savings Accounts (ESAs)
Starting in 2025, employers can add emergency savings accounts (ESAs) linked to their retirement plans. These accounts:
– Allow employees to contribute up to $2,500 annually in after-tax dollars.
– Provide tax-free withdrawals for emergency expenses.
– Permit employers to match ESA contributions as part of their regular retirement plan match.
This feature can help your employees balance short-term financial needs with long-term retirement goals, potentially enhancing retention and engagement.
- Long-Term, Part-Time Employee Eligibility
The SECURE Act of 2019 required that part-time employees with 500 hours of service per year for three consecutive years be eligible to participate in a 401(k) plan.
Starting in 2025, the service requirement drops to two years. This part is more of an FYI; your end-of-year plan census that you provide to your TPA (Third Party Administrator) will be able to tell you whether anyone that wasn’t previously eligible is now eligible for plan enrollment.
- Student Loan Payment Matching Contributions
SECURE 2.0 allows employers to treat employees’ student loan payments as retirement plan deferrals, making them eligible for employer matching contributions. While this provision took effect in 2024, it’s still something to consider moving forward to attract and retain younger team members burdened by student debt, notably applicable to recent optometry school graduates.
Your NBS (Next Best Step)
- Evaluate Your Current Retirement Plan
– Does your plan allow for Roth contributions?
– Are you tracking part-time employee hours accurately?
– Do your plan’s features align with employee needs and business goals?
- Work with Your Advisor or Third-Party Administrator (TPA)
– Update plan documents to comply with new requirements (e.g., automatic enrollment).
– Ensure your payroll system can handle Roth catch-up contributions and student loan matching.
- Communicate Changes to Employees
Clear communication is vital for employee engagement. Ask your plan provider to provide information on topics such as:
– The benefits of automatic enrollment and escalation.
– How new features, like ESAs, can help meet financial goals.
- Ensure capture of Tax Credits
Given that tax credits aren’t claimed until you file your tax returns, ensure that your CPA and advisory team are on the same page and compiling a list of credits you’ll be claiming.
Final Thoughts
SECURE 2.0 is a game-changer for small businesses, and optometric practices are no exception.
While this article was meant to give you an understanding of what’s changing, this is a perfect example of where practice owners should rightly delegate this administrative work to their advisory team and ensure that each is talking to the other to ensure you claim all applicable credits for administrative costs and employer contributions.
I could make the argument that your only action item based on everything that I have written thus far is to copy the URL, paste it into a new e-mail, and send it to your CPA, financial advisor and TPA with the following message: “Good day team! Given the retirement plan that I have in my practice, can you confirm and ensure that we’re complying with all of the current and impending changes while also ensuring that I’m maximizing my savings opportunities? Thanks in advance. Signed, <<The Delegator Practice Owner>>
By staying informed and proactive while also surrounding yourself with an awesome advisory team, you can leverage these changes to enhance your retirement plan’s effectiveness, reduce costs and increase employee satisfaction.
If you’re unsure where to start, consult with a retirement plan advisor to develop a strategy tailored to your unique needs as a practice owner.
Your financial future—and that of your employees—deserves careful planning. Make 2025 and beyond the years you take full advantage of these opportunities.
Adam Cmejla, CFP® is a CERTIFIED FINANCIAL PLANNERTM and Practitioner and Founder of Integrated Planning & Wealth Management, LLC, an independent financial planning & investment management firm focused on helping optometric practice owners nationwide “plan life, on purpose” by providing personal and professional CFO services. Check out the “20/20 Money Podcast” to get more tips on making educated and informed financial and business decisions, be the first to know when his new book How to Buy an Optometry Practice is released, and the “20/20 Money Membership,” built to help ODs become brilliant at the financial basics.
