SECURE 2.0 Loosens Ability to Maximize Highly Compensated Spouse’s Contributions

Originally Published on 5/2/24

by Prof. Robert Bloink and Prof. William H. Byrnes

The SECURE Act 2.0 made changes that made a widespread impact on retirement plans, especially in the small business context. While some changes, including changes to the required beginning date age and the “Rothification” of catch-up contributions for higher earnings have gained significant attention, one commonly overlooked change is expected to make it easier for closely held businesses to satisfy existing retirement plan nondiscrimination rules. Under pre-SECURE 2.0 law, two spouses who each have ownership interest in separate businesses often ran into problems trying to pass nondiscrimination testing due to the family attribution rules. This often limited the flexibility of businesses offering retirement benefits solely due to state community property laws or the existence of minor children—and unintended consequence. SECURE 2.0 created two important exceptions that can now help closely held business owners offer retirement plans without running afoul of the IRS.